ÂÒÂ×°ÍÊ¿

Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

v3.20.2
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
 3 Months Ended
Jun. 27, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract] Ìý
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Summary of Derivative Financial Instruments

All of ÂÒÂ×°Íʿ’s outstanding derivative financial instruments are foreign exchange forward contracts. Although derivatives meet the criteria for hedge accounting at the inception of the hedging relationship, a limited number of derivative contracts intended to hedge assets and liabilities are not designated as hedges for accounting purposes. The notional amounts of all outstanding derivative contracts were $2.9 billion at June 2020, $2.6 billion at
March 2020 and $3.1 billion at June 2019, consisting primarily of contracts hedging exposures to the euro, British pound, Canadian dollar, Mexican peso, Swiss franc, South Korean won, Swedish krona, Polish zloty, Japanese yen and New Zealand dollar. Derivative contracts have maturities up to 20 months.
The following table presents outstanding derivatives on an individual contract basis:
Ìý Fair Value of Derivatives
with Unrealized Gains		 Fair Value of Derivatives
with Unrealized Losses
(In thousands) June 2020 March 2020 June 2019 June 2020 March 2020 June 2019
Foreign currency exchange contracts designated as hedging instruments
 $ 53,810Ìý Ìý $ 78,298Ìý Ìý $ 67,979Ìý Ìý $ (13,329) Ìý $ (12,682) Ìý $ (9,359) Ìý
Foreign currency exchange contracts not designated as hedging instruments
 14,775Ìý Ìý 13,536Ìý Ìý 12,372Ìý Ìý (2,302) Ìý (1,849) Ìý (2,015) Ìý
Total derivatives
 $ 68,585Ìý Ìý $ 91,834Ìý Ìý $ 80,351Ìý Ìý $ (15,631) Ìý $ (14,531) Ìý $ (11,374) Ìý
ÂÒÂ×°ÍÊ¿ records and presents the fair values of all of its derivative assets and liabilities in the Consolidated Balance Sheets on a gross basis, even though they are subject to master netting agreements. If ÂÒÂ×°ÍÊ¿ were to offset and record the asset and liability balances of its foreign exchange forward contracts on a net basis in accordance with the terms of its master netting agreements, the amounts presented in the Consolidated Balance Sheets would be adjusted from the current gross presentation to the net amounts as detailed in the following table:
Ìý June 2020 March 2020 June 2019
(In thousands) Derivative
Asset		 Derivative
Liability		 Derivative
Asset		 Derivative
Liability		 Derivative
Asset		 Derivative
Liability
Gross amounts presented in the Consolidated Balance Sheets
 $ 68,585Ìý Ìý $ (15,631) Ìý $ 91,834Ìý Ìý $ (14,531) Ìý $ 80,351Ìý Ìý $ (11,374) Ìý
Gross amounts not offset in the Consolidated Balance Sheets
 (15,607) Ìý 15,607Ìý Ìý (14,393) Ìý 14,393Ìý Ìý (11,301) Ìý 11,301Ìý Ìý
Net amounts
 $ 52,978Ìý Ìý $ (24) Ìý $ 77,441Ìý Ìý $ (138) Ìý $ 69,050Ìý Ìý $ (73) Ìý
Derivatives are classified as current or noncurrent based on maturity dates, as follows:
(In thousands) June 2020 March 2020 June 2019
Other current assets $ 56,428Ìý Ìý $ 71,784Ìý Ìý $ 72,132Ìý Ìý
Accrued liabilities (10,103) Ìý (11,378) Ìý (8,143) Ìý
Other assets 12,157Ìý Ìý 20,050Ìý Ìý 8,219Ìý Ìý
Other liabilities (5,528) Ìý (3,153) Ìý (3,231) Ìý
Cash Flow Hedges
ÂÒÂ×°ÍÊ¿ uses derivative contracts primarily to hedge a portion of the exchange risk for its forecasted sales, purchases, production costs, operating costs and intercompany royalties. The effects of cash flow hedging included in ÂÒÂ×°Íʿ’s Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income (Loss) are summarized as follows:
(In thousands) GainÌý(Loss)ÌýonÌýDerivatives Recognized in OCI
ThreeÌýMonthsÌýEndedÌýJune
Cash Flow Hedging Relationships 2020 2019
Foreign currency exchange $ (7,595) Ìý $ 14,774Ìý Ìý
(In thousands) GainÌý(Loss)ÌýReclassifiedÌýfrom AccumulatedÌýOCIÌýintoÌýIncome (Loss)
ThreeÌýMonthsÌýEnded June
Location of Gain (Loss) 2020 2019
Net revenues
 $ 171Ìý Ìý $ (2,905) Ìý
Cost of goods sold
 16,705Ìý Ìý 11,105Ìý Ìý
Selling, general and administrative expenses
 1,607Ìý Ìý 716Ìý Ìý
Other income (expense), net
 1,770Ìý Ìý 2,872Ìý Ìý
Interest expense
 27Ìý Ìý (1,293) Ìý
Total $ 20,280Ìý Ìý $ 10,495Ìý Ìý
Derivative Contracts Not Designated as Hedges

ÂÒÂ×°ÍÊ¿ uses derivative contracts to manage foreign currency exchange risk on third-party accounts receivable and payable, as well as intercompany borrowings. These contracts are not designated as hedges, and are recorded at fair value in the Consolidated Balance Sheets. Changes in the fair values of these instruments are recognized directly in earnings. Gains or losses on these contracts largely offset the net transaction losses or gains on the related assets and liabilities. In the case of derivative contracts executed on foreign currency exposures that are no longer probable of occurring, ÂÒÂ×°ÍÊ¿ de-designates these hedges and the fair value changes of these instruments are also recognized directly in earnings. As a result of the COVID-19 pandemic and actions expected to be taken by the Company, certain derivative contracts were de-designated as hedged forecasted transactions were no longer deemed probable of occurring. Accordingly, the Company reclassified amounts from accumulated OCI and recognized a $5.0Ìýmillion net gain during the three months ended June 2020, which was primarily recorded in cost of goods sold.
The changes in fair value of derivative contracts not designated as hedges that have been recognized as gains or losses in ÂÒÂ×°ÍÊ¿'s Consolidated Statements of Operations were not material for the three months ended June 2020 and June 2019.
Other Derivative Information

At June 2020, accumulated OCI included $43.3 million of pre-tax net deferred gains for foreign currency exchange contracts that are expected to be reclassified to earnings during the next 12 months. The amounts ultimately reclassified to earnings will depend on exchange rates in effect when outstanding derivative contracts are settled.

Net Investment Hedge

The Company has designated its €1.850 billion of euro-denominated fixed-rate notes as a net investment hedge of ÂÒÂ×°Íʿ’s investment in certain foreign operations. Because this debt qualified as a nonderivative hedging instrument, foreign currency transaction gains or losses of the debt are deferred in the foreign currency translation and other component of accumulated OCI as an offset to the foreign currency translation adjustments on the hedged investments. During the three-month periods ended June 2020 and June 2019, the Company recognized after-tax losses of $18.1 million and $8.7 million, respectively, in OCI related to the net investment hedge transaction. Any amounts deferred in accumulated OCI will remain until the hedged investment is sold or substantially liquidated.