Financial Instruments

6 Months Ended

Jun. 29, 2019

Debt Instruments

The carrying values of the Notes vary from their fair values. The fair values of the Notes were determined by reference to the quoted market prices of these securities (Level 2 input based on the GAAP fair value hierarchy). The carrying value of the Company’s Term Loan Facility approximates its fair value (Level 3 input based on the GAAP fair value hierarchy). The estimated fair value, as well as the carrying value, of the Company's debt instruments are shown below (in millions):



	June 29, 2019		December 31, 2018
Estimated aggregate fair value⁽¹⁾	$	2,353.2	$	1,921.6
Aggregate carrying value ^{(1) (2)}	2,339.0		1,967.2

⁽¹⁾ Term Loan Facility and Notes (excludes "other" debt)

⁽²⁾ Excludes the impact of unamortized original issue discount and debt issuance costs

Cash, Cash Equivalents and Restricted Cash

The Company has on deposit, cash that is legally restricted as to use or withdrawal. A reconciliation of cash, cash equivalents and restricted cash reported on the condensed consolidated balance sheets to cash, cash equivalents and restricted cash reported on the condensed consolidated statements of cash flows is shown below (in millions):



	June 29, 2019		June 30, 2018
Balance sheet - cash and cash equivalents	$	1,269.0	$	1,327.9
Restricted cash included in other current assets	15.5		21.2
Restricted cash included in other long-term assets	6.4		17.7
Statement of cash flows - cash, cash equivalents and restricted cash	$	1,290.9	$	1,366.8

Marketable Equity Securities

Marketable equity securities, which the Company accounts for under the fair value option, are included in the accompanying condensed consolidated balance sheets as shown below (in millions):



	June 29, 2019		December 31, 2018
Current assets	$	15.7	$	4.8
Other long-term assets	38.2		42.5
	$	53.9	$	47.3

Unrealized gains and losses arising from changes in the fair value of the marketable equity securities are recognized in the accompanying condensed consolidated statements of comprehensive income as a component of other (income) expense, net. The fair value of the marketable equity securities is determined by reference to quoted market prices in active markets (Level 1 input based on the GAAP fair value hierarchy).

Equity Securities Without Readily Determinable Fair Values

Included in other long-term assets in the accompanying condensed consolidated balance sheets as of June 29, 2019 and December 31, 2018, are $20.2 million and $12.7 million, respectively, of investments in equity securities without readily determinable fair values. Such investments are valued at cost, less any impairment, and adjusted for changes resulting from observable, orderly transactions for identical or similar securities.

Derivative Instruments and Hedging Activities

The Company has used derivative financial instruments, including forwards, futures, options, swaps and other derivative contracts to reduce the effects of fluctuations in foreign exchange rates and interest rates and the resulting variability of the Company’s operating results. The Company is not a party to leveraged derivatives. The Company’s derivative financial instruments are subject to master netting arrangements that provide for the net settlement of contracts, by counterparty, in the event of default or termination. On the date that a derivative contract for a hedging instrument is entered into, the Company designates the derivative as either (1) a hedge of the exposure to changes in the fair value of a recognized asset or liability or of an unrecognized firm commitment (a fair value hedge), (2) a hedge of the exposure of a forecasted transaction or of the variability in the cash flows of a recognized asset or liability (a cash flow hedge), (3) a hedge of a net investment in a foreign operation (a net investment hedge) or (4) a contract not designated as a hedging instrument.

For a fair value hedge, the change in the fair value of the derivative is recorded in earnings and reflected in the condensed consolidated statement of comprehensive income on the same line as the gain or loss on the hedged item attributable to the hedged risk. For a cash flow hedge, the change in the fair value of the derivative is recorded in accumulated other comprehensive loss in the condensed consolidated balance sheet. When the underlying hedged transaction is realized, the gain or loss included in accumulated other comprehensive loss is recorded in earnings and reflected in the condensed consolidated statement of comprehensive income on the same line as the gain or loss on the hedged item attributable to the hedged risk. For a net investment hedge, the change in the fair value of the derivative is recorded in cumulative translation adjustment, which is a component of accumulated other comprehensive loss in the condensed consolidated balance sheet. Changes in the fair value of contracts not designated as hedging instruments are recorded in earnings and reflected in the condensed consolidated statement of comprehensive income as other (income) expense, net. Cash flows attributable to derivatives used to manage foreign currency risks are classified on the same line as the hedged item attributable to the hedged risk in the condensed consolidated statements of cash flows. Cash flows attributable to forward starting interest rate swaps are classified as financing activities in the condensed consolidated statements of cash flows.

The Company formally documents its hedge relationships, including the identification of the hedge instruments and the related hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. Derivatives are recorded at fair value in other current and long-term assets and other current and long-term liabilities in the consolidated balance sheet. The Company also formally assesses whether a derivative used in a hedge transaction is highly effective in offsetting changes in either the fair value or the cash flows of the hedged item. When it is determined that a hedged transaction is no longer probable to occur, the Company discontinues hedge accounting.

Foreign Exchange

The Company uses forwards, swaps and other derivative contracts to reduce the effects of fluctuations in foreign exchange rates on known foreign currency exposures. Gains and losses on the derivative instruments are intended to offset gains and losses on the hedged transaction in an effort to reduce exposure to fluctuations in foreign exchange rates. The principal currencies hedged by the Company include the Mexican peso, various European currencies, the Thai baht, the Japanese yen, the Philippine peso and the Chinese renminbi.

The notional amount, estimated aggregate fair value and related balance sheet classification of the Company's foreign currency derivative contracts are shown below (in millions, except for maturities):



	June 29, 2019			December 31, 2018
Fair value of foreign currency contracts designated as cash flow hedges:
Other current assets	$	32.3		$	20.6
Other long-term assets	5.6			2.8
Other current liabilities	(3.8		)	(8.4		)
Other long-term liabilities	(0.6		)	(2.0		)
	33.5			13.0
Notional amount	$	1,281.1		$	1,499.0
Outstanding maturities in months, not to exceed	24			24
Fair value of foreign currency contracts not designated as hedging instruments:
Other current assets	$	4.0		$	6.1
Other current liabilities	(8.7		)	(4.8		)
	(4.7		)	1.3
Notional amount	$	1,434.3		$	654.0
Outstanding maturities in months, not to exceed	12			12
Total fair value	$	28.8		$	14.3
Total notional amount	$	2,715.4		$	2,153.0

Foreign currency derivative contracts not designated as hedging instruments consist principally of hedges of cash transactions, intercompany loans and certain other balance sheet exposures.

Interest Rate Swaps

Included in other current liabilities in the accompanying condensed consolidated balance sheet as of December 31, 2018, is $14.7 million related to the estimated fair value of forward starting interest rate swap contracts with a notional amount of $500.0 million.

Accumulated Other Comprehensive Loss - Derivative Instruments and Hedging

Pretax amounts related to foreign currency and interest rate swap contracts designated as cash flow hedges that were recognized in and reclassified from accumulated other comprehensive loss are shown below (in millions):



	Three Months Ended						Six Months Ended
	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018
Gains (losses) recognized in accumulated other comprehensive loss:
Foreign currency contracts	$	17.6		$	(38.1	)	$	42.4		$	12.7
Interest rate swap contracts	5.2			(2.9		)	(9.5		)	(2.9		)
	22.8			(41.0		)	32.9			9.8
(Gains) losses reclassified from accumulated other comprehensive loss to:
Net sales	0.5			1.1			1.0			2.8
Cost of sales	(13.2		)	(2.4		)	(22.9		)	(7.2		)
Interest expense	0.3			—			0.3			—
	(12.4		)	(1.3		)	(21.6		)	(4.4		)
Comprehensive income (loss)	$	10.4		$	(42.3	)	$	11.3		$	5.4

As of June 29, 2019 and December 31, 2018, pretax net gains (losses) of approximately $9.6 million and ($1.7) million, respectively, related to the Company’s derivative instruments and hedging activities were recorded in accumulated other comprehensive loss. During the next twelve month period, net gains (losses) expected to be reclassified into earnings are shown below (in millions):



Net gains related to foreign currency contracts	$	28.5
Net losses related to interest rate swap contracts	(2.3		)
Total	$	26.2

Such gains and losses will be reclassified at the time that the underlying hedged transactions are realized.

Fair Value Measurements

GAAP provides that fair value is an exit price, defined as a market-based measurement that represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value measurements are based on one or more of the following three valuation techniques:



Market:		This approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

Income:		This approach uses valuation techniques to convert future amounts to a single present value amount based on current market expectations.

Cost:		This approach is based on the amount that would be required to replace the service capacity of an asset (replacement cost).

Further, GAAP prioritizes the inputs and assumptions used in the valuation techniques described above into a three-tier fair value hierarchy as follows:



Level 1:		Observable inputs, such as quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date.

Level 2:		Inputs, other than quoted market prices included in Level 1, that are observable either directly or indirectly for the asset or liability.

Level 3:		Unobservable inputs that reflect the entity’s own assumptions about the exit price of the asset or liability. Unobservable inputs may be used if there is little or no market data for the asset or liability at the measurement date.

The Company discloses fair value measurements and the related valuation techniques and fair value hierarchy level for its assets and liabilities that are measured or disclosed at fair value.

Items Measured at Fair Value on a Recurring Basis

Fair value measurements and the related valuation techniques and fair value hierarchy level for the Company’s assets and liabilities measured at fair value on a recurring basis as of June 29, 2019 and December 31, 2018, are shown below (in millions):



	June 29, 2019
	Frequency	Asset (Liability)		Valuation Technique	Level 1		Level 2		Level 3
Foreign currency contracts, net	Recurring	$	28.8	Market/ Income	$	—	$	28.8	$	—
Marketable equity securities	Recurring	$	53.9	Market	$	53.9	$	—	$	—



	December 31, 2018
	Frequency	Asset (Liability)			Valuation Technique	Level 1		Level 2			Level 3
Foreign currency contracts, net	Recurring	$	14.3		Market/ Income	$	—	$	14.3		$	—
Interest rate swap contracts	Recurring	$	(14.7	)	Market/ Income	$	—	$	(14.7	)	$	—
Marketable equity securities	Recurring	$	47.3		Market	$	47.3	$	—		$	—

The Company determines the fair value of its derivative contracts using quoted market prices to calculate the forward values and then discounts such forward values to the present value. The discount rates used are based on quoted bank deposit or swap interest rates. If a derivative contract is in a net liability position, the Company adjusts these discount rates, if required, by an estimate of the credit spread that would be applied by market participants purchasing these contracts from the Company’s counterparties. If an estimate of the credit spread is required, the Company uses significant assumptions and factors other than quoted market rates, which would result in the classification of its derivative liabilities within Level 3 of the fair value hierarchy. As of June 29, 2019 and December 31, 2018, there were no derivative contracts that were classified within Level 3 of the fair value hierarchy. In addition, there were no transfers in or out of Level 3 of the fair value hierarchy in 2019.

Items Measured at Fair Value on a Non-Recurring Basis

The Company measures certain assets and liabilities at fair value on a non-recurring basis, which are not included in the table above. As these non-recurring fair value measurements are generally determined using unobservable inputs, these fair value measurements are classified within Level 3 of the fair value hierarchy.

As a result of the acquisition of Xevo, Level 3 fair value estimates of $122.2 million related to intangible assets are recorded in the accompanying condensed consolidated balance sheet as of June 29, 2019. The estimated fair values of these assets were based on third-party valuations and management's estimates, generally utilizing the income and cost approaches.

For further information related to assets and liabilities measured at fair value on a non-recurring basis, see Note 2, "Acquisition."

As of June 29, 2019, there were no additional significant assets or liabilities measured at fair value on a non-recurring basis.