Derivative Financial Instruments

Our derivative financial instruments reduce our exposure to fluctuations in foreign exchange rates and variable interest 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.

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. A cash flow hedge requires that the change in the fair value of a derivative instrument be recognized in other comprehensive income, a component of shareholders’ equity, and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings and is presented in the same income statement line item as the earnings effect of the hedged item.

17. Derivative Financial Instruments (continued)

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 derivative instruments with a credit-risk-related contingent feature that are in a liability position on September 28, 2018, however they are immaterial to our financial condition and results of operation. As of September 28, 2018, 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 September 28, 2018, we would not be required to post collateral to the counterparty, because the collateralization threshold has not been met.

Derivative instruments are disclosed on a gross basis. There are various rights of setoff associated with our derivative instruments that are subject to an enforceable master netting arrangement or similar agreements. Although various rights of setoff and master netting arrangements or similar agreements may exist with the individual counterparties, individually, these financial rights are not material.

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, which generally mature within one year. Our foreign currency hedges were entered into for the purpose of hedging portions of our 2018 and 2019 foreign currency exposure.

The foreign currency forward contracts qualifying as cash flow hedges were designated as single-purpose cash flow hedges of forecasted cash flows.

We had the following outstanding foreign currency forward contracts as of September 28, 2018 (in millions):



Foreign currency contracts qualifying as cash flow hedges:	Notional amount
Euro	EUR	74.7
British pound	GBP	1.9
Japanese yen	JPY	230.8
Philippine peso	PHP	1.5
Korean won	KRW	6,232.5

17. Derivative Financial Instruments (continued)

Interest Rate Contracts

We are exposed to fluctuations in variable interest rates on our results of operations and financial condition and we mitigate that exposure by entering into interest rate swaps. We entered into interest rate swaps in order to hedge the risk of the fluctuation on future interest payments related to our variable rate LIBOR-based borrowings through 2028.

Gains or losses on interest rate swaps are recorded in other comprehensive income and will be subsequently reclassified into earnings as interest expense as the interest expense on debt is recognized in earnings. At September 28, 2018, the notional value of interest rate contracts outstanding was $400 million, $200 million maturing in 2024 and the remaining $200 million maturing in 2028. Refer to Note 12, “Long-Term Debt and Capital Lease Obligations.”

The following table reflects the fair values of derivative instruments, which are designated as level 2 in the fair value hierarchy, as of September 28, 2018 and December 29, 2017 (U.S. dollars in millions):



Derivatives designated as hedging instruments ⁽¹⁾
	Foreign exchange contracts				Interest rate swaps				Total
Balance Sheet location:	September 28, 2018 ⁽²⁾		December 29, 2017		September 28, 2018		December 29, 2017		September 28, 2018		December 29, 2017
Asset derivatives:
Prepaid expenses and other current assets	$	2.8	$	—	$	—	$	—	$	2.8	$	—
Other long-term receivables	—		—		2.2		—		2.2		—
Total asset derivatives	$	2.8	$	—	$	2.2	$	—	$	5.0	$	—

Liability derivatives:
Accounts payable and accrued expenses	$	—	$	1.4	$	—	$	—	$	—	$	1.4
Other long-term liabilities	—		—		—		—		—		—
Total liability derivatives	$	—	$	1.4	$	—	$	—	$	—	$	1.4

⁽¹⁾ See Note 18, "Fair Value Measurements", for fair value disclosures.

⁽²⁾ We expect that $2.8 million of the net fair value of hedges recognized as a net gain in accumulated other comprehensive income ("AOCI") will be transferred to earnings during the next 12 months and the remaining net gain of $2.2 million over a period of 10 years, along with the earnings effect of the related forecasted transactions.

17. Derivative Financial Instruments (continued)

The following table reflects the effect of derivative instruments on the Consolidated Statements of Operations for the quarters and nine months ended September 28, 2018 and September 29, 2017 (U.S. dollars in millions):



Derivatives in effective cash flow hedging relationships	Amount of gain (loss) recognized in other comprehensive income on derivatives (effective portion)						Location of (loss) income reclassified from AOCI into income (effective portion)	Amount of (loss) income reclassified from AOCI into income (effective portion)
	Quarter ended							Quarter ended
	September 28, 2018			September 29, 2017				September 28, 2018			September 29, 2017
Foreign exchange contracts	$	(0.6	)	$	(0.3	)	Net sales	$	1.9		$	(1.5	)
Foreign exchange contracts	—			—			Cost of products sold	(0.2		)	0.1
Interest rate swaps	4.1			—			Interest expense	(0.8		)	—
Total	$	3.5		$	(0.3	)		$	0.9		$	(1.4	)

	Nine months ended							Nine months ended
	September 28, 2018			September 29, 2017				September 28, 2018			September 29, 2017
Foreign exchange contracts	$	3.5		$	(6.2	)	Net sales	$	2.0		$	0.1
Foreign exchange contracts	0.8			(0.5		)	Cost of products sold	0.2			0.4
Interest rate swaps	2.1			—			Interest expense	(0.9		)	—
Total	$	6.4		$	(6.7	)		$	1.3		$	0.5