Financial Instruments Measured at Fair Value

6 Months Ended

Jul. 02, 2016

Fair Value Disclosures [Abstract]

Financial Instruments Measured At Fair Value [Text Block]

Financial Instruments Measured at Fair Value

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  The company utilizes a fair value hierarchy, which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.  The fair value hierarchy has three levels of inputs that may be used to measure fair value:

Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 Quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable.

The following table presents assets (liabilities) measured at fair value on a recurring basis at July 2, 2016:

	Level 1		Level 2		Level 3			Total
Available-for-sale securities	$	35,980	$	—	$	—		$	35,980
Interest rate swaps	—		2,252		—			2,252
Foreign exchange contracts	—		2,139		—			2,139
Contingent consideration	—		—		(2,522		)	(2,522		)
	$	35,980	$	4,391	$	(2,522	)	$	37,849

The following table presents assets (liabilities) measured at fair value on a recurring basis at December 31, 2015:

	Level 1		Level 2			Level 3			Total
Available-for-sale securities	$	41,178	$	—		$	—		$	41,178
Interest rate swaps	—		711			—			711
Foreign exchange contracts	—		(738		)	—			(738		)
Contingent consideration	—		—			(3,889		)	(3,889		)
	$	41,178	$	(27	)	$	(3,889	)	$	37,262

Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to goodwill and identifiable intangible assets (see Note C). The company tests these assets for impairment if indicators of potential impairment exist. 

During the first six months of 2016 and 2015, there were no transfers of assets (liabilities) measured at fair value between the three levels of the fair value hierarchy.

Available-For-Sale Securities

The company has an 8.4% equity ownership interest in Marubun Corporation ("Marubun") and a portfolio of mutual funds with quoted market prices, all of which are accounted for as available-for-sale securities.

The fair value of the company's available-for-sale securities is as follows:

	July 2, 2016				December 31, 2015
	Marubun		Mutual Funds		Marubun		Mutual Funds
Cost basis	$	10,016	$	17,485	$	10,016	$	17,389
Unrealized holding gain	3,239		5,240		8,708		5,065
Fair value	$	13,255	$	22,725	$	18,724	$	22,454

The fair value of these investments are included in "Other assets" in the company's consolidated balance sheets, and the related unrealized holding gains or losses are included in "Accumulated other comprehensive loss" in the shareholders' equity section in the company's consolidated balance sheets.

Derivative Instruments

The company uses various financial instruments, including derivative instruments, for purposes other than trading.  Certain derivative instruments are designated at inception as hedges and measured for effectiveness both at inception and on an ongoing basis. Derivative instruments not designated as hedges are marked-to-market each reporting period with any unrealized gains or losses recognized in earnings.

Interest Rate Swaps

The company occasionally enters into interest rate swap transactions that convert certain fixed-rate debt to variable-rate debt or variable-rate debt to fixed-rate debt in order to manage its targeted mix of fixed- and floating-rate debt. The company uses the hypothetical derivative method to assess the effectiveness of its interest rate swaps on a quarterly basis. The effective portion of the change in the fair value of interest rate swaps designated as fair value hedges is recorded as a change to the carrying value of the related hedged debt, and the effective portion of the change in fair value of interest rate swaps designated as cash flow hedges is recorded in the shareholders' equity section in the company's consolidated balance sheets in "Accumulated other comprehensive loss." The ineffective portion of the interest rate swap, if any, is recorded in "Interest and other financing expense, net" in the company's consolidated statements of operations.

In January 2015, the company entered into four seven-year forward-starting interest rate swaps (the "2015 swaps") which locked in an average treasury rate of 1.98% on a total aggregate notional amount of $200,000. These 2015 swaps were designated as cash flow hedges and managed the risk associated with changes in treasury rates and the impact of future interest payments on the anticipated debt issuances to replace the company's 3.375% notes due to mature in November 2015. In February 2015, the company received $896 in connection with the termination of the 2015 swaps upon issuance of the seven-year notes due in 2022. The fair value of the 2015 swaps is recorded in the shareholders' equity section in the company's consolidated balance sheets in "Accumulated other comprehensive loss" and is being reclassified into income over the seven-year term of the notes due in 2022. For the 2015 swaps, the company reclassified into income $30 and $59 for the second quarter and first six months of 2016, respectively. The company reclassified into income $30 and $39 for the second quarter and first six months of 2015, respectively.

In April 2014, the company entered into an interest rate swap, with a notional amount of $50,000. The swap modifies the company's interest rate exposure by effectively converting a portion of the fixed 6.00% notes to a floating rate, based on the six-month U.S. dollar LIBOR plus a spread (an effective interest rate of 4.88% at July 2, 2016), through its maturity. The swap is classified as a fair value hedge and had a fair value of $1,758 at July 2, 2016.

In April 2014, the company entered into an interest rate swap, with a notional amount of $50,000. The swap modifies the company's interest rate exposure by effectively converting a portion of the fixed 6.875% senior debentures to a floating rate, based on the six-month U.S. dollar LIBOR plus a spread (an effective interest rate of 6.41% at July 2, 2016), through its maturity. The swap is classified as a fair value hedge and had a fair value of $494 at July 2, 2016.

Foreign Exchange Contracts

The company enters into foreign exchange forward, option, or swap contracts (collectively, the "foreign exchange contracts") to mitigate the impact of changes in foreign currency exchange rates.  These contracts are executed to facilitate the hedging of foreign currency exposures resulting from inventory purchases and sales and generally have terms of no more than six months. Gains or losses on these contracts are deferred and recognized when the underlying future purchase or sale is recognized or when the corresponding asset or liability is revalued. The company does not enter into foreign exchange contracts for trading purposes. The risk of loss on a foreign exchange contract is the risk of nonperformance by the counterparties, which the company minimizes by limiting its counterparties to major financial institutions.  The fair value of the foreign exchange contracts are estimated using market quotes.  The notional amount of the foreign exchange contracts at July 2, 2016 and December 31, 2015 was $367,332 and $382,025, respectively.

The fair values of derivative instruments in the company's consolidated balance sheets are as follows:

	Asset (Liability) Derivatives
		Fair Value
	Balance Sheet Location	July 2, 2016			December 31, 2015
Derivative instruments designated as hedges:
Interest rate swaps designated as fair value hedges	Other liabilities	$	—		$	—
Interest rate swaps designated as fair value hedges	Other assets	2,252			711
Foreign exchange contracts designated as cash flow hedges	Other current assets	77			896
Foreign exchange contracts designated as cash flow hedges	Accrued expenses	(874		)	(572		)
Total derivative instruments designated as hedging instruments		1,455			1,035
Derivative instruments not designated as hedges:
Foreign exchange contracts	Other current assets	4,764			1,729
Foreign exchange contracts	Accrued expenses	(1,828		)	(2,791		)
Total derivative instruments not designated as hedging instruments		2,936			(1,062		)
Total		$	4,391		$	(27	)

The effect of derivative instruments on the company's consolidated statements of operations is as follows:

	Gain (Loss) Recognized in Income
	Quarter Ended					Six Months Ended
	July 2, 2016		June 27, 2015			July 2, 2016		June 27, 2015
Derivative instruments not designated as hedges:
Foreign exchange contracts (a)	$	4,660	$	(1,187	)	$	1,612	$	(379	)
Total	$	4,660	$	(1,187	)	$	1,612	$	(379	)

	Cash Flow Hedges
	Quarter Ended						Six Months Ended
	July 2, 2016						July 2, 2016
	Interest Rate Swaps (b)			Foreign Exchange Contracts (c)			Interest Rate Swaps (b)			Foreign Exchange Contracts (c)
Effective portion:
Gain (loss) recognized in other comprehensive income	$	—		$	543		$	—		$	(534	)
Loss reclassified into income	$	(150	)	$	(469	)	$	(299	)	$	(1,091	)
	Cash Flow Hedges
	Quarter Ended						Six Months Ended
	June 27, 2015						June 27, 2015
	Interest Rate Swaps (b)			Foreign Exchange Contracts (c)			Interest Rate Swaps (b)			Foreign Exchange Contracts (c)
Effective portion:
Gain (loss) recognized in other comprehensive income	$	—		$	(2,245	)	$	827		$	437
Gain (loss) reclassified into income	$	(141	)	$	163		$	(302	)	$	(678	)
Ineffective portion:
Gain recognized in income	$	—		$	—		$	69		$	—

(a) The amount of gain (loss) recognized in income on derivatives is recorded in "Cost of sales" in the company's consolidated statements of operations.

(b) Both the effective and ineffective portions of any gain (loss) reclassified or recognized in income are recorded in "Interest and other financing expense, net" in the company's consolidated statements of operations. The gain (loss) amounts reclassified into income relate to the termination of swaps.

(c) Both the effective and ineffective portions of any gain (loss) reclassified or recognized in income are recorded in "Cost of sales" in the company's consolidated statements of operations.

Other

The carrying amount of cash and cash equivalents, accounts receivable, net, and accounts payable approximate their fair value due to the short maturities of these financial instruments.