Financial Instruments Measured at Fair Value

9 Months Ended

Sep. 28, 2019

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 September 28, 2019:

	Balance Sheet Location	Level 1		Level 2			Level 3		Total
Cash equivalents (a)	Cash and cash equivalents/ other assets	$	19,847	$	—		$	—	$	19,847
Equity investments (b)	Other assets	43,071		—			—		43,071
Interest rate swaps	Other liabilities	—		(21,534		)	—		(21,534		)
Foreign exchange contracts	Other current assets/ other assets	—		30,533			—		30,533
Foreign exchange contracts	Accrued expenses	—		(1,431		)	—		(1,431		)
		$	62,918	$	7,568		$	—	$	70,486

The following table presents assets (liabilities) measured at fair value on a recurring basis at December 31, 2018:

	Balance Sheet Location	Level 1		Level 2			Level 3		Total
Cash equivalents (a)	Cash and cash equivalents/ other assets	$	22,883	$	—		$	—	$	22,883
Equity investments (b)	Other assets	38,045		—			—		38,045
Interest rate swaps	Other liabilities	—		(589		)	—		(589		)
Foreign exchange contracts	Other current assets	—		4,163			—		4,163
Foreign exchange contracts	Accrued expenses	—		(2,384		)	—		(2,384		)
		$	60,928	$	1,190		$	—	$	62,118

(a) Cash equivalents include highly liquid investments with an original maturity of less than three months.

(b) The company has an 8.4% equity ownership interest in Marubun Corporation and a portfolio of mutual funds with quoted market prices. The company recorded an unrealized gain of $378 and $2,220 for the third quarter and nine months ended September 28, 2019, respectively, on equity securities held at the end of the quarter. The company recorded an unrealized gain of $272 and an unrealized loss of $6,971 for the third quarter and nine months ended September 29, 2018, respectively, on equity securities held at the end of the quarter.

Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to goodwill, identifiable intangible assets, and long-lived assets (see Notes D and E). The company tests these assets for impairment if indicators of potential impairment exist or at least annually if indefinite lived.

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 designated as fair value hedges on a quarterly basis. 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 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.”

As of September 28, 2019 and December 31, 2018, the company had one outstanding interest rate swap designated as a fair value hedge, the terms of which are as follows:

Maturity Date	Notional Amount	Interest rate due from counterparty	Interest rate due to counterparty
April 2020	50,000	6.000%	6 mo. USD LIBOR + 3.896%

In May 2019, the company entered into a series of ten-year forward-starting interest rate swaps (the “2019 swaps”) which locked in an average treasury rate of 2.33% on a total aggregate notional amount of $300,000. The 2019 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 anticipated debt issuances to replace the company’s 6% notes due to mature in April 2020. The changes in fair value of the 2019 swaps is recorded in the shareholders’ equity section in the company’s consolidated balance sheets in “Accumulated other comprehensive loss” and will be reclassified into income over the life of the anticipated debt issuance. Losses of $9,360 and $16,209 related to the 2019 swaps were recorded in other comprehensive loss, net of taxes, for the third quarter and first nine months of 2019. The 2019 swaps had a fair value of $(21,517) as of September 28, 2019.

Foreign Exchange Contracts

The company’s foreign currency exposure relates primarily to international transactions where the currency collected from customers can be different from the currency used to purchase the product. The company’s transactions in its foreign operations are denominated primarily in the following currencies: Euro, Chinese Renminbi, Indian Rupee, British Pound, and Canadian Dollar. The company enters into foreign exchange forward, option, or swap contracts (collectively, the “foreign exchange contracts”) to facilitate the hedging of foreign currency exposures resulting from inventory purchases and sales and mitigate the impact of changes in foreign currency exchange rates related to these transactions. Foreign exchange contracts 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 September 28, 2019 and December 31, 2018 was $914,137 (inclusive of foreign exchange contracts designated as a net investment hedge) and $607,747, respectively.

Gains and losses related to non-designated foreign currency exchange contracts are recorded in “Cost of sales” in the company’s consolidated statements of operations. Gains and losses related to foreign currency exchange contracts designated as cash flow hedges are recorded in “Cost of sales,” “Selling, general, and administrative expenses,” and “Interest and other financing expense, net” based upon the nature of the underlying hedged transaction, in the company’s consolidated statements of operations and were not material for the third quarter and first nine months of 2019 and 2018.

During the first quarter of 2019, the company entered into a series of foreign exchange contracts to sell Euro and buy United States Dollars, with various maturity dates as noted in the table below:

Maturity Date	Notional Amount
March 2023	EUR 50,000
September 2024	EUR 50,000
April 2025	EUR 100,000
January 2028	EUR 100,000
Total	EUR 300,000

The contracts above have been designated as a net investment hedge which is in place to hedge a portion of the company’s net investment in subsidiaries with euro-denominated net assets. The change in the fair value of derivatives designated as net investment hedges will be recorded in “foreign currency translation adjustment” (“CTA”) within “Accumulated other comprehensive loss” in the company’s consolidated balance sheets. Amounts excluded from the assessment of hedge effectiveness will be included in “Interest and other financing expense, net” in the company’s consolidated statements of operations.

The gains recorded in CTA within other comprehensive loss related to net investment hedges were $13,249 and $20,065 for the third quarter and nine months ended September 28, 2019, net of taxes, respectively. For the third quarter and nine months ended September 28, 2019 gains of $2,193 and $5,791 for outstanding net investment hedges were reclassified from CTA to “Interest and other financing expense, net” in the company’s consolidated statements of operations. The net investment hedges had a fair value of $25,425 as of September 28, 2019.

The effects of derivative instruments on the company’s consolidated statements of operations and other comprehensive income are as follows:

	Quarter Ended						Nine Months Ended
	September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018
Gain (Loss) Recognized in Income
Foreign exchange contracts	$	7,642		$	3,565		$	11,905		$	4,083
Interest rate swaps	(327		)	(311		)	(968		)	(922		)
Total	$	7,315		$	3,254		$	10,937		$	3,161
Gain (Loss) Recognized in Other Comprehensive Loss before reclassifications, net of tax
Foreign exchange contracts	$	13,248		$	(1,212	)	$	20,495		$	(2,348	)
Interest rate swaps	(9,360		)	—			(16,209		)	—
Total	$	3,888		$	(1,212	)	$	4,286		$	(2,348	)

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.