Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

v3.23.2
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
 6 Months Ended
Jul. 01, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Summary of Derivative Financial Instruments
The Company enters into derivative contracts with external counterparties to hedge certain foreign currency transactions. The notional amount of all outstanding foreign currency exchange contracts was $333.0 million at June 2023, $322.3 million at December 2022 and $294.9 million at June 2022, consisting primarily of contracts hedging exposures to the euro, Mexican peso, Canadian dollar, British pound, Polish zloty and Swedish krona. Foreign currency exchange contracts have maturities up to 20 months.
During 2019, the Company entered into "floating to fixed" interest rate swap agreements to mitigate exposure to volatility in reference rates on the Company's future interest payments. The notional amount of the interest rate swap agreements was $300.0 million at June 2023, December 2022 and June 2022. Because these interest rate swap agreements meet the criteria for hedge accounting, all related gains and losses are deferred within accumulated other comprehensive loss ("AOCL") and are being amortized through April 18, 2024.
The Company's outstanding derivative financial instruments met the criteria for hedge accounting at the inception of the hedging relationships. At each reporting period, the Company assesses whether the hedging relationships continue to be highly effective in offsetting changes in cash flows of hedged items. If the Company determines that a specific hedging relationship has ceased to be highly effective, it would discontinue hedge accounting for the hedging relationship. All designated hedging relationships were determined to be highly effective as of June 2023.
The following table presents the fair value of outstanding derivatives on an individual contract basis:
Fair Value of Derivatives
with Unrealized Gains		 Fair Value of Derivatives
with Unrealized Losses
June December June June December June
(In thousands) 2023 2022 2022 2023 2022 2022
Derivatives designated as hedging instruments:
Foreign currency exchange contracts $ 23,358  $ 15,565  $ 13,968  $ (4,629) $ (2,307) $ (360)
Interest rate swap agreements 8,529  11,357  6,512  —  —  — 
Derivatives not designated as hedging instruments:
Foreign currency exchange contracts 24  —  28  (336) —  — 
Total derivatives $ 31,911  $ 26,922  $ 20,508  $ (4,965) $ (2,307) $ (360)
The Company records and presents the fair value of all derivative assets and liabilities in the Company's balance sheets on a gross basis, even though certain derivative contracts are subject to master netting agreements. If the Company were to offset and record the asset and liability balances of its derivative contracts on a net basis in accordance with the terms of its master netting agreements, the amounts presented in the Company's balance sheets would be adjusted from the current gross presentation to the net amounts.
The following table presents a reconciliation of gross to net amounts for derivative asset and liability balances:
June 2023 December 2022 June 2022
(In thousands) Derivative Asset Derivative Liability Derivative Asset Derivative Liability Derivative Asset Derivative Liability
Gross amounts presented in the balance sheet $ 31,911  $ (4,965) $ 26,922  $ (2,307) $ 20,508  $ (360)
Gross amounts not offset in the balance sheet (2,038) 2,038  (1,629) 1,629  (360) 360 
Net amounts $ 29,873  $ (2,927) $ 25,293  $ (678) $ 20,148  $ — 
The following table presents the location of derivatives in the Company's balance sheets, with current or noncurrent classification based on maturity dates:
(In thousands) June 2023 December 2022 June 2022
Prepaid expenses and other current assets $ 29,167  $ 14,183  $ 12,222 
Accrued liabilities (4,497) (1,218) (221)
Other assets 2,744  12,739  8,286 
Other liabilities (468) (1,089) (139)
Cash Flow Hedges
The following tables present the pre-tax effects of cash flow hedges included in the Company's statements of operations and statements of comprehensive income:
Gain (Loss) on Derivatives Recognized in AOCL
(In thousands) Three Months Ended June Six Months Ended June
Cash Flow Hedging Relationships 2023 2022 2023 2022
Foreign currency exchange contracts $ 7,792  $ 6,915  $ 18,129  $ 14,240 
Interest rate swap agreements 2,017  1,459  1,708  10,554 
Total $ 9,809  $ 8,374  $ 19,837  $ 24,794 
Gain (Loss) Reclassified from AOCL into Income
(In thousands) Three Months Ended June Six Months Ended June
Location of Gain (Loss) 2023 2022 2023 2022
Net revenues $ (62) $ (261) $ (233) $ (393)
Cost of goods sold 4,256  2,425  10,248  4,726 
Other expense, net 136  2  296  (101)
Interest expense 2,435  (745) 4,536  (2,011)
Total $ 6,765  $ 1,421  $ 14,847  $ 2,221 
Other Derivative Information
Any contracts that are not designated as hedges are recorded at fair value in the Company's balance sheets. Changes in the fair values of derivative contracts not designated as hedges are recognized directly in earnings. There were no significant amounts recognized in earnings for the ineffective portion of any hedging relationships or changes in the fair values of derivative contracts not designated as hedges during the three and six months ended June 2023 and June 2022.
At June 2023, AOCL included $30.1 million of pre-tax net deferred gains for foreign currency exchange contracts and interest rate swap agreements that are expected to be reclassified to earnings during the next 12 months. The amounts ultimately reclassified to earnings will depend on rates in effect when outstanding derivative contracts are settled.