Derivative Financial Instruments (Notes)

6 Months Ended

Jun. 28, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Derivative Financial Instruments

We use derivatives to partially offset our business exposure to foreign currency risk. We may enter into forward contracts, option contracts, swaps, collars or other derivative instruments to offset some of the risk on expected future cash flows and on certain existing assets and liabilities. However, we may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting considerations and the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign currency exchange rates.

To help protect gross margins from fluctuations in foreign currency exchange rates, certain of our subsidiaries whose functional currency is the U.S. dollar hedge a portion of forecasted foreign currency costs. Generally, we may hedge portions of our forecasted foreign currency exposure associated with costs, typically for up to 24 months.

We record all derivatives in the consolidated balance sheets at fair value. Our accounting treatment for these instruments is based on the hedge designation. The effective portions of cash flow hedges are recorded in Accumulated Other Comprehensive Income ("AOCI") until the hedged item is recognized in earnings. The ineffective portions of cash flow hedges are recorded in cost of sales. Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in the financial statement line item to which the derivative relates.

Deferred gains and losses associated with cash flow hedges of foreign currency costs are recognized as a component of cost of sales in the same period as the related cost is recognized. Our foreign currency transactions hedged with cash flow hedges as of June 28, 2015, are expected to occur monthly through December 2017.

Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period. Deferred gains and losses in AOCI associated with such derivative instruments are reclassified immediately into other income and expense. Any subsequent changes in fair value of such derivative instruments are reflected in other income and expense unless they are re-designated as hedges of other transactions. We have not recognized any net gains or losses related to the loss of hedge designation on discontinued cash flow hedges.

We had no gains or losses recognized in other income and expense for foreign currency forward and option contracts not designated as hedging instruments during the thirteen week period ended June 28, 2015 or the year ended December 28, 2014.

The following table displays the fair value of derivatives by balance sheet line item:

	June 28, 2015								December 28, 2014
(Dollars in thousands)	Other Non-current Assets		Accrued Liabilities			Other Non-current Liabilities			Accrued Liabilities			Other Non-current Liabilities
Foreign exchange forward contracts and collars designated as hedging instruments	$	324	$	(6,598	)	$	(2,640	)	$	(5,598	)	$	(1,954	)
Total derivative instruments	$	324	$	(6,598	)	$	(2,640	)	$	(5,598	)	$	(1,954	)

The following table summarizes the notional amount and estimated fair value of our derivative financial instruments:

	June 28, 2015							December 28, 2014
(Dollars in thousands)	Local Currency Notional Amount		U.S. Dollar Notional Amount		Fair Value			Local Currency Notional Amount		U.S. Dollar Notional Amount		Fair Value
Mexico Pesos (Collars) (1)	$	131,500	$	780	$	(106	)	$	—	$	—	$	—
Mexico Pesos (Forwards)	1,699,477		115,457		(8,808		)	1,620,386		115,442		(7,552		)
Total derivative financial instruments	$	1,830,977	$	116,237	$	(8,914	)	$	1,620,386	$	115,442	$	(7,552	)

(1) The collars include Mexico peso call options with a notional amount of MXN 131.5 million and Mexico peso put options with a notional amount of MXN 131.5 million, as of June 28, 2015.

Notional amounts are presented on a gross basis. The notional amounts of the derivative financial instruments do not represent amounts exchanged by the parties and, therefore, are not a direct measure of our exposure to the financial risks described above. The amounts exchanged are calculated by reference to the notional amounts and by other terms of the derivatives, such as interest rates, foreign currency exchange rates, or commodity volumes and prices. The hedging contracts mature monthly through December 2017.

The following table provides the impact of derivative instruments designated as cash flow hedges on our consolidated income statement:

Twenty-six Week Period Ended June 28, 2015	Amount of Gain or (Loss)Recognized in OCI on Derivatives (Effective Portion)			Amount of Gain or(Loss) Reclassified from AOCI into Income (Effective Portion)			Amount of Pre-tax Gain or(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
(Thousands of dollars)
Foreign exchange forward contracts and collars	$	(4,830	)	$	(3,534	)	$	—
Total	$	(4,830	)	$	(3,534	)	$	—