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Derivative Instruments and Hedging Activities
 3 Months Ended
Apr. 02, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities Derivative Instruments and Hedging Activities
The Company's primary exposure to market risk relates to changes in foreign currency exchange rates and interest rates. The Company’s primary foreign currency risk management objective is to protect the U.S. dollar value of future cash flows and minimize the volatility of reported earnings. The Company does not use foreign currency forward contracts for speculative or trading purposes. The Company mitigates exposure to foreign currency exchange rates and interest rates primarily through the following:
Mitigation ApproachQuantitative Information on Approach
The Company utilizes foreign currency forward contracts to reduce the volatility of cash flows primarily related to forecasted revenue and expenses denominated in Canadian dollars for our Canadian companies, and in British pounds for our U.K. companies. These contracts are designated and qualify as cash flow hedges.
As of April 2, 2023, the Company had foreign currency forward contracts to buy Canadian dollars and to sell U.S. dollars totaling $134.9 million. These foreign currency forward contracts have maturities ranging from June 2023 to February 2025. As of April 2, 2023, The Company had foreign currency forward contracts to buy British pounds and to sell U.S. dollars totaling $12.3 million. These foreign currency forward contracts have maturities ranging from June 2023 to February 2024.
The Company utilizes foreign currency forward contracts to mitigate foreign exchange rate risk associated with foreign currency denominated monetary assets and liabilities, including intercompany receivables and payables. These foreign currency forward contracts are not designated as accounting hedges.
See Non-Designated Hedging Activities section below.
The Company has converted a U.S. dollar denominated, variable rate debt obligation of a European subsidiary into euro fixed rate obligation using a receive float, pay fixed cross currency swap to reduce the variability of interest rates. This cross currency swap is designated as cash flow hedge.
As of April 2, 2023, the Company has a cross currency swap outstanding with a notional amount of €156.0 million and $150.0 million that matures in October 2024.
All derivative instruments are recorded on the condensed consolidated balance sheets at fair value. The accounting for gains and losses resulting from changes in fair value depends on the use of the derivative instrument and whether it is designated and qualifies for hedge accounting.
Designated Hedging Activities
For a derivative instrument designated as an accounting hedge of an anticipated transaction (a cash flow hedge), the change in the fair value is recorded on the condensed consolidated balance sheets in AOCI to the extent the derivative instrument is effective in mitigating the exposure related to the anticipated transaction. The amount recorded within AOCI is reclassified into earnings in the same period during which the underlying hedged transaction affects earnings. The effect of derivative instruments designated as cash flow hedges in the condensed consolidated financial statements for the first quarter ended April 2, 2023 and April 3, 2022 was as follows (in millions):
 First Quarter
 20232022
Net gain (loss) recognized in AOCI - Foreign Exchange Contracts (a)$13.6 $13.7 
Net gain (loss) reclassified from AOCI into revenue - Foreign Exchange Contracts (a)$(1.9)$(0.2)
Net gain (loss) recognized in AOCI - Interest Rate Contracts$— $1.3 
Net gain (loss) reclassified from AOCI into other income and expense, net - Foreign Exchange Contracts (b)$10.1 $6.2 
Net gain (loss) reclassified from AOCI into interest expense - Foreign Exchange Contracts$1.5 $0.9 
Net gain (loss) reclassified from AOCI into interest expense - Interest Rate Contracts $0.6 $(0.4)
(a)    Effective portion, pre-tax
(b)     Amount reclassified to offset earnings impact of liability hedged by cross currency swap
Net deferred losses recorded in AOCI for the forward contracts that will mature in the next twelve months total $3.1 million, net of taxes. These losses are expected to be offset by anticipated gains in the value of the forecasted underlying hedged item. Amounts related to the cross currency swap expected to be reclassified from AOCI into income in the next twelve months total $7.0 million.
Non-Designated Hedging Activities
For a derivative instrument that has not been designated as an accounting hedge, the change in the fair value is recognized immediately in earnings. As of April 2, 2023, the Company had foreign currency forward contracts not designated as accounting hedges primarily in the following types and pairs (in millions):
Contracts to BuyContracts to Sell
CurrencyAmountCurrencyAmount
Canadian Dollars$185.6 U.S. DollarsUS$136.7 
Great Britain Pounds£50.3 U.S. DollarsUS$60.7 
Euros€50.5 U.S. DollarsUS$53.6 
Danish KroneDKR107.9 U.S. DollarsUS$15.5 
Swedish KronaSEK163.5 Euros€14.7 
U.S. DollarsUS$13.6 Chinese Yuan¥93.9 
The preceding table includes non-designated hedges derived from terms contained in previously designated cash flow hedges. The gains and losses on these derivatives instruments which are not designated as accounting hedges are intended to, at a minimum, partially offset the transaction gains and losses recognized in earnings.
The effect of derivative instruments not designated as accounting hedges recognized in other income and expense for the first quarter ended April 2, 2023 was income of $7.8 million. The effect of derivative instruments not designated as accounting hedges in other income and expense for the first quarter ended April 3, 2022 was expense of $4.8 million. The income or expense was largely offset by losses or gains in the value of the underlying hedged item excluding the impact of forward points.
Fair Value of Derivative Financial Instruments
The fair values of the Company’s derivative instruments are presented below. All fair values for these derivative instruments were measured using Level 2 inputs in the fair value hierarchy (in millions):
Asset/(Liability) Derivative InstrumentsBalance sheet locationApril 2, 2023January 1, 2023
Derivatives designated as hedging instruments:
Cash flow forward contractsOther current assets$1.4 $0.4 
Cash flow forward contractsAccrued liabilities(4.5)(6.8)
Interest rate contractsOther current assets— 0.7 
Cash flow cross currency swapOther current assets2.3 2.7 
Cash flow cross currency swapOther current liabilities— (14.0)
Cash flow cross currency swapOther non-current liabilities(20.5)(18.3)
Total derivatives designated as hedging instruments(21.3)(35.3)
Derivatives not designated as hedging instruments:
Non-designated forward contractsOther current assets8.5 3.5 
Non-designated forward contractsAccrued liabilities(4.8)(7.0)
Total derivatives not designated as hedging instruments3.7 (3.5)
Total derivative instruments, net$(17.6)$(38.8)