Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

v3.22.1
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
 3 Months Ended
Apr. 02, 2022
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 $287.5 million at March 2022, $297.4 million at December 2021 and $304.3 million at March 2021, 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 LIBOR rates on the Company's future interest payments. The notional amount of the interest rate swap agreements was $300.0 million at March 2022 and $350.0 million at both December 2021 and March 2021. 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 relationship. 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. All designated hedging relationships were determined to be highly effective as of March 2022. A limited number of foreign currency exchange contracts intended to hedge assets and liabilities are not designated as hedges for accounting purposes.
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
March December March March December March
(In thousands) 2022 2021 2021 2022 2021 2021
Derivatives designated as hedging instruments:
Foreign currency exchange contracts $ 11,041  $ 7,321  $ 6,593  $ (1,073) $ (1,972) $ (4,659)
Interest rate swap agreements 4,309  —  —  —  (6,052) (12,710)
Derivatives not designated as hedging instruments:
Foreign currency exchange contracts 131  —  221  (2) —  (3)
Total derivatives $ 15,481  $ 7,321  $ 6,814  $ (1,075) $ (8,024) $ (17,372)
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:
March 2022 December 2021 March 2021
(In thousands) Derivative Asset Derivative Liability Derivative Asset Derivative Liability Derivative Asset Derivative
Liability
Gross amounts presented in the balance sheet $ 15,481  $ (1,075) $ 7,321  $ (8,024) $ 6,814  $ (17,372)
Gross amounts not offset in the balance sheet (938) 938  (1,636) 1,636  (2,355) 2,355 
Net amounts $ 14,543  $ (137) $ 5,685  $ (6,388) $ 4,459  $ (15,017)
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) March 2022 December 2021 March 2021
Prepaid expenses and other current assets $ 9,424  $ 6,356  $ 5,830 
Accrued liabilities (838) (1,623) (4,065)
Other assets 6,057  965  984 
Other liabilities (237) (6,401) (13,307)
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 on Derivatives Recognized in AOCL
(In thousands) Three Months Ended
Cash Flow Hedging Relationships March 2022 March 2021
Foreign currency exchange contracts $ 7,325  $ 1,546 
Interest rate swap agreements 9,095  2,086 
Total $ 16,420  $ 3,632 
Gain (Loss) Reclassified from AOCL into Income
(In thousands) Three Months Ended
Location of Gain (Loss) March 2022 March 2021
Net revenues $ (132) $ 75 
Cost of goods sold 2,301  (1,405)
Other expense, net (103) (134)
Interest expense (1,266) (1,513)
Total $ 800  $ (2,977)
Derivative Contracts Not Designated as Hedges
Contracts that are not designated as hedges and are recorded at fair value in the Company's balance sheets primarily relate to derivatives contracts used by the Company to manage foreign currency exchange risk on certain accounts receivable and accounts payable. Gains or losses on the balance sheet contracts largely offset the net transaction gains or losses on the related assets and liabilities. In addition, a limited number of cash flow hedges were deemed ineffective and de-designated. Changes in the fair values of derivative contracts not designated as hedges are recognized directly in earnings.
The following table presents a summary of these derivatives included in the Company's statements of operations:
Location of Gain (Loss) on Derivatives Recognized in Income Gain (Loss) on Derivatives Recognized in Income
(In thousands) Three Months Ended
Derivatives Not Designated as Hedges March 2022 March 2021
Foreign currency exchange contracts Net revenues $ —  $ (81)
Cost of goods sold 6  (123)
Other expense, net —  209 
Total $ 6  $ 5 
Other Derivative Information
There were no significant amounts recognized in earnings for the ineffective portion of any hedging relationships during the three months ended March 2022 and March 2021.
At March 2022, AOCL included $10.0 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.