Financial Instruments and Risk Management (Notes)

9 Months Ended

Oct. 02, 2021

Investments, All Other Investments [Abstract]

Financial Instruments and Risk Management

DERIVATIVE FINANCIAL INSTRUMENTS

The Company follows FASB ASC Topic 815, Derivatives and Hedging ("ASC 815"), which requires that all derivative instruments be recorded on the consolidated condensed balance sheets at fair value by establishing criteria for designation and effectiveness of hedging relationships. The Company does not hold or issue financial instruments for trading purposes.

The Company utilizes foreign currency forward exchange contracts designated as cash flow hedges to manage the volatility associated primarily with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of business. These foreign currency forward exchange hedge contracts extended out to a maximum of 538 days, 538 days, and 545 days as of October 2, 2021, January 2, 2021 and September 26, 2020, respectively. If, in the future, the foreign exchange contracts are determined not to be highly effective or are terminated before their contractual termination dates, the Company

would remove the hedge designation from those contracts and reclassify into earnings the unrealized gains or losses that would otherwise be included in accumulated other comprehensive income (loss) within stockholders’ equity. During the nine-months ended September 26, 2020, the Company reclassified $1.3 million to other income for foreign currency contracts that were no longer deemed highly effective.

The Company also utilizes foreign currency forward exchange contracts that are not designated as hedging instruments to manage foreign currency transaction exposure. Foreign currency derivatives not designated as hedging instruments are offset by foreign exchange gains or losses resulting from the underlying exposures of foreign currency denominated assets and liabilities.

The Company had an interest rate swap arrangement to mitigate interest volatility with regard to variable rate borrowings under the Amended Senior Credit Facility. The interest rate swap exchanged floating rate for fixed rate interest payments without the exchange of the underlying notional amounts and had been designated as cash flow hedge of the underlying debt. The arrangement was terminated during the fourth quarter of fiscal 2020.

The Company had a cross currency swap to minimize the impact of exchange rate fluctuations which matured on September 1, 2021. Changes in fair value related to movements in the foreign currency exchange spot rate were recorded in accumulated other comprehensive income (loss), offsetting the currency translation adjustment related to the underlying net investment that was also recorded in accumulated other comprehensive income (loss). All other changes in fair value were recorded in interest expense.

The notional amounts of the Company’s derivative instruments are as follows:

(Dollars in millions)	October 2, 2021		January 2, 2021		September 26, 2020
Foreign exchange hedge contracts	$	297.1	$	250.7	$	188.3
Foreign exchange non-hedge contracts	4.1		—		—
Interest rate swap	—		—		293.9
Cross currency swap	—		79.8		79.8

The recorded fair values of the Company’s derivative instruments are as follows:

(In millions)	October 2, 2021		January 2, 2021		September 26, 2020
Financial assets:
Foreign exchange hedge contracts	$	4.9	$	—	$	1.3
Financial liabilities:
Foreign exchange hedge contracts	$	(1.0)	$	(8.8)	$	(0.4)
Interest rate swap	—		—		(8.6)
Cross currency swap	—		(10.8)		(6.2)