Financial Instruments

3 Months Ended

Apr. 01, 2023

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 estimated fair value, as well as the carrying value, of the Company's debt instruments are shown below (in millions):


	April 1, 2023		December 31, 2022
Estimated aggregate fair value (1)	$	2,238.9	$	2,142.3
Aggregate carrying value (1) (2)	2,600.0		2,600.0

(1) Excludes "other" debt

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

Cash, Cash Equivalents and Restricted Cash

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


	April 1, 2023		April 2, 2022
Balance sheet:
Cash and cash equivalents	$	898.5	$	1,162.0
Restricted cash included in other current assets	0.6		—
Restricted cash included in other long-term assets	1.7		2.8
Statement of cash flows:
Cash, cash equivalents and restricted cash	$	900.8	$	1,164.8

Accounts Receivable

The Company's allowance for credit losses on financial assets measured at amortized cost, primarily accounts receivable, reflects management's estimate of credit losses over the remaining expected life of such assets, measured primarily using historical experience, as well as current conditions and forecasts that affect the collectability of the reported amount. Expected credit losses for newly recognized financial assets, as well as changes to expected credit losses during the period, are recognized in earnings. The Company also considers geographic and segment specific risk factors in the development of expected credit losses. As of April 1, 2023 and December 31, 2022, accounts receivable are reflected net of reserves of $33.6 million and $35.3 million, respectively. Changes in expected credit losses were not significant in the first three months of 2023.

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):


	April 1, 2023		December 31, 2022
Current assets	$	1.1	$	3.6
Other long-term assets	59.7		53.6
	$	60.8	$	57.2

Unrealized gains and losses arising from changes in the fair value of the marketable equity securities are recognized in other expense, net in the condensed consolidated statements of comprehensive income. 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

As of April 1, 2023 and December 31, 2022, investments in equity securities without readily determinable fair values of $13.2 million and $18.2 million, respectively, are included in other long-term assets in the accompanying condensed consolidated balance sheets. Such investments are valued at cost, less cumulative impairments of $15.0 million and $10.0 million as of April 1, 2023 and December 31, 2022, respectively. During the three months ended April 1, 2023, the Company recognized a loss of $5.0 million related to the impairment of an investment in equity securities without a readily determinable fair value.

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 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 hedge 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 hedge 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 statements 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 sheets. 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 statements 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 sheets. When the related currency translation adjustment is required to be reclassified, usually upon the sale or liquidation of the investment, the gain or loss included in accumulated other comprehensive loss is recorded in earnings and reflected in other expense, net in the condensed consolidated statements of comprehensive income. Changes in the fair value of contracts not designated as hedge instruments are recorded in earnings and reflected in other expense, net in the condensed consolidated statements of comprehensive income. 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. Upon settlement, cash flows attributable to derivatives designated as net investment hedges are classified as investing activities 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 condensed consolidated balance sheets. 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 Chinese renminbi, the Philippine peso and the Japanese yen.

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

Net Investment Hedges

The Company uses cross-currency interest rate swaps, which are designated as net investment hedges of the foreign currency rate exposure of its investment in certain Euro-denominated subsidiaries. In the three months ended April 1, 2023 and April 2, 2022, contra interest expense on net investment hedges of $0.6 million and $1.6 million, respectively, is included in interest expense in the accompanying condensed consolidated statements of comprehensive income.

Balance Sheet Classification

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


	April 1, 2023		December 31, 2022
Fair value of foreign currency contracts designated as cash flow hedges:
Other current assets	$	121.6	$	63.4
Other long-term assets	20.9		10.3
Other current liabilities	(1.9)		(6.7)
Other long-term liabilities	(1.1)		(0.2)
	139.5		66.8
Notional amount	$	1,513.9	$	1,546.9
Outstanding maturities in months, not to exceed	24		24
Fair value of derivatives designated as net investment hedges:

Other long-term assets	$	4.0	$	4.8



Notional amount	$	150.0	$	150.0
Outstanding maturities in months, not to exceed	36		39
Fair value of foreign currency contracts not designated as hedging instruments:
Other current assets	$	3.9	$	9.5
Other current liabilities	(1.0)		(13.4)
	2.9		(3.9)
Notional amount	$	514.2	$	758.6
Outstanding maturities in months, not to exceed	4		7
Total fair value	$	146.4	$	67.7
Total notional amount	$	2,178.1	$	2,455.5

Accumulated Other Comprehensive Loss — Derivative Instruments and Hedging

Pretax amounts related to foreign currency and net investment hedge contracts that were recognized in and reclassified from accumulated other comprehensive loss are shown below (in millions):


	Three Months Ended
	April 1, 2023		April 2, 2022
Gains (losses) recognized in accumulated other comprehensive loss:
Foreign currency contracts	$	95.7	$	39.5
Net investment hedge contracts	(0.8)		0.3
	94.9		39.8
(Gains) losses reclassified from accumulated other comprehensive loss to:
Net sales	0.7		(1.6)
Cost of sales	(24.1)		(7.0)
Interest expense	0.6		0.6
Other expense, net	0.4		—
	(22.4)		(8.0)
Comprehensive income	$	72.5	$	31.8

As of April 1, 2023 and December 31, 2022, pretax net gains of $144.3 million and $71.8 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):


Foreign currency contracts	$	119.7
Interest rate swap contracts	(2.4)

Total	$	117.3

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 April 1, 2023 and December 31, 2022, are shown below (in millions):


	April 1, 2023
	Frequency	Asset (Liability)		Valuation Technique	Level 1		Level 2		Level 3
Foreign currency contracts, net	Recurring	$	142.4	Market/ Income	$	—	$	142.4	$	—
Net investment hedges	Recurring	4.0		Market/ Income	—		4.0		—
Marketable equity securities	Recurring	60.8		Market	60.8		—		—


	December 31, 2022
	Frequency	Asset (Liability)		Valuation Technique	Level 1		Level 2		Level 3
Foreign currency contracts, net	Recurring	$	62.9	Market/ Income	$	—	$	62.9	$	—
Net investment hedges	Recurring	4.8		Market/ Income	—		4.8		—
Marketable equity securities	Recurring	57.2		Market	57.2		—		—

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 April 1, 2023 and December 31, 2022, 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 the first three months of 2023.

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.

In the three months ended April 1, 2023, the Company completed an impairment assessment related to certain of its intangible assets resulting from a change in the intended use of such asset and recorded an impairment charge of $0.9 million. The fair value estimate of the related asset group was based on management's estimates using a discounted cash flow method.

As of April 1, 2023, there were no additional significant assets or liabilities measured at fair value on a non-recurring basis.