Derivative Financial Instruments

12 Months Ended

Jan. 01, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

Our derivative financial instruments reduce our exposure to fluctuations in foreign exchange rates. We predominantly designate our derivative financial instruments as cash flow hedges.

Counterparties expose us to credit loss in the event of non-performance on hedges.  We monitor our exposure to counterparty non-performance risk both at inception of the hedge and at least quarterly thereafter.  However, because the contracts are entered into with highly rated financial institutions, we do not anticipate non-performance by any of these counterparties.  The exposure is usually the amount of the unrealized gains, if any, in such contracts.

Because of the high degree of effectiveness between the hedging instrument and the underlying exposure being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the cash flows or fair value of the underlying exposures being hedged.  In addition, we perform an assessment of hedge effectiveness, both at inception and at least quarterly thereafter, to determine whether the financial instruments that are used in hedging transactions are effective at offsetting changes in the cash flows or fair value of the related underlying exposures. Any ineffective portion of a financial instrument’s change in fair value is immediately recognized in earnings.

Certain of our derivative instruments contain provisions that require the current credit relationship between us and our counterparty to be maintained throughout the term of the derivative instruments.  If that credit relationship changes, certain provisions could be triggered, and the counterparty could request immediate collateralization of derivative instruments in net liability position above a certain threshold.  There are no derivative instruments with a credit-risk-related contingent feature that are in a liability position on January 1, 2016. As of January 1, 2016, no triggering event has occurred and thus we are not required to post collateral.  If the credit-risk-related contingent features underlying these agreements were triggered on January 1, 2016, we would not be required to post collateral to its counterparty because the collateralization threshold has not been met.

Foreign Currency Hedges

We are exposed to fluctuations in currency exchange rates against the U.S. dollar on our results of operations and financial condition and we mitigate that exposure by entering into foreign currency forward contracts. Certain of our subsidiaries periodically enter into foreign currency forward contracts in order to hedge portions of forecasted sales or cost of sales denominated in foreign currencies with forward contracts and options, which generally expire within 1 year. At January 1, 2016, our foreign currency forward contracts will hedge a portion of our 2016 foreign currency exposure.

We designate our foreign currency forward contracts as single-purpose cash flow hedges of forecasted cash flows.  Based on our formal assessment of hedge effectiveness of our foreign currency forward contracts, we determined that the impact of hedge ineffectiveness was de minimis for the years ended January 1, 2016, December 26, 2014 and December 27, 2013.

18.  Derivative Financial Instruments (continued)

We had the following outstanding foreign currency forward contracts as of January 1, 2016:

Foreign Currency Contracts Qualifying as Cash Flow Hedges:		Notional Amount
Euro	€	157.4	million
Japanese yen	JPY	2,608.7	million

The following table reflects the fair values of derivative instruments as of January 1, 2016 (U.S. dollars in millions):

Derivatives Designated as Hedging Instruments (1)
	Foreign exchange contracts
Balance Sheet Location:	January 1, 2016 (2)		December 26, 2014
Asset derivatives:
Prepaid expenses and other current assets	$	11.9	$	22.7
Other noncurrent assets	—		3.1
Total asset derivatives	$	11.9	$	25.8
Liability derivatives:
Accounts payable and accrued expenses	$	—	$	0.2
Other noncurrent liabilities	—		—
Total liability derivatives	$	—	$	0.2

⁽¹⁾ See Note 19, "Fair Value Measurements", for fair value disclosures.

⁽²⁾ We expect that $11.9 million of the net fair value of hedges recognized as a net gain in AOCI will be transferred to earnings during the next 12 months along with the effect of the related forecasted transaction.

The fair value of our derivatives changed from a net asset of $25.6 million as of December 26, 2014 to a net asset of $11.9 million as of January 1, 2016, related to our foreign currency cash flow hedges.  For foreign currency hedges, these fluctuations are primarily driven by the strengthening or weakening of the U.S. dollar compared to currencies being hedged relative to the contracted exchange rates and the settling of a number of contracts throughout 2015. During 2015, we entered into derivative contracts to hedge the euro and Japanese yen relative to our sales. The change in 2015 was primarily related to the settling of the majority of the contracts throughout 2015.

18.  Derivative Financial Instruments (continued)

The following table reflects the effect of derivative instruments on the Consolidated Statements of Income for the years ended January 1, 2016 and December 26, 2014 (U.S. dollars in millions):

Derivatives in Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives (Effective Portion)						Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
	Year ended							Year ended
	January 1, 2016			December 26, 2014				January 1, 2016			December 26, 2014
Foreign exchange contracts	$	(13.0	)	$	29.0		Net sales	$	(39.0	)	$	4.6
Foreign exchange contracts	(0.3		)	(0.7		)	Cost of products sold	(0.7		)	—
Total	$	(13.3	)	$	28.3			$	(39.7	)	$	4.6