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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2022-03-03 compared with 2021-03-02 · 38 added, 37 removed, 56 unchanged (57% of the section changed)

4 unchanged sentences

We believe we had no significant concentrations of credit risk as of January 2, 2022.

We use derivative instruments as part of our risk management strategy only, and include derivatives utilized as economic hedges that are not designated as hedging instruments.

We use derivative instruments as part of our risk management strategy only, and includes derivatives utilized as economic hedges that are not designated as hedging instruments.

By nature, all financial instruments involve market and credit risks.

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We do not enter into derivative contracts for trading or other speculative purposes, nor do we use leveraged financial instruments.

Approximately 70% of our business is conducted outside of the United States, generally in foreign currencies.

As a result, fluctuations in foreign currency exchange rates can increase the costs of financing, investing and operating the business.

In the ordinary course of business, we enter into foreign exchange contracts for periods consistent with our committed exposures to mitigate the effect of foreign currency movements on transactions denominated in foreign currencies.

In the ordinary course of business, we enter into foreign exchange contracts for periods consistent with its committed exposures to mitigate the effect of foreign currency movements on transactions denominated in foreign currencies.

The intent of these economic hedges is to offset gains and losses that occur on the underlying exposures from these currencies, with gains and losses resulting from the forward currency contracts that hedge these exposures.

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The contracts are primarily in European and Asian currencies, have maturities that do not exceed 12 months, have no cash requirements until maturity, and are recorded at fair value on our consolidated balance sheets.

The unrealized gains and losses on our foreign currency contracts are recognized immediately in interest and other expense, net.

The unrealized gains and losses on these foreign currency contracts are recognized immediately in interest and other expense, net.

The cash flows related to the settlement of these hedges are included in cash flows from operating activities within our consolidated statements of cash flows.

Principal hedged currencies include the Brazilian Real, British Pound, Chinese Yuan, Euro, Indian Rupee, Singapore Dollar and Swedish Krona.

Principal hedged currencies include the Australian Dollar, British Pound, Euro, Indian Rupee, Singapore Dollar and Swedish Krona.

We held forward foreign exchange contracts, designated as economic hedges, with U.S.

dollar equivalent notional amounts totaling $808.0 million at January 3, 2021, $277.6 million at December 29, 2019, and $223.3 million at December 30, 2018, and the fair value of these foreign currency derivative contracts was insignificant.

dollar equivalent notional amounts totaling $371.9 million at January 2, 2022, $808.0 million at January 3, 2021, and $277.6 million at December 29, 2019, and the fair value of these foreign currency derivative contracts was insignificant.

The gains and losses realized on these foreign currency derivative contracts are not material.

The duration of these contracts was generally 30 days or less during each of fiscal years 2021, 2020 and 2019.

In addition, in connection with certain intercompany loan agreements utilized to finance our acquisitions and stock repurchase program, we enter into forward foreign exchange contracts intended to hedge movements in foreign exchange rates prior to settlement of such intercompany loans denominated in foreign currencies.

In addition, in connection with certain intercompany loan agreements utilized to finance its acquisitions and stock repurchase program, we enters into forward foreign exchange contracts intended to hedge movements in foreign exchange rates prior to settlement of such intercompany loans denominated in foreign currencies.

We record these hedges at fair value on our consolidated balance sheets.

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The cash flows related to the settlement of these hedges are included in cash flows from financing activities within our consolidated statements of cash flows.

The outstanding forward exchange contracts designated as economic hedges, which were intended to hedge movements in foreign exchange rates prior to the settlement of certain intercompany loan agreements, included combined Euro notional amounts of €33.4 million and U.S.

Dollar notional amounts of $360.2 million as of January 2, 2022, combined Euro notional amounts of €33.4 million and combined U.S.

Dollar notional amounts of $5.6 million as of December 29, 2019, and combined Euro notional amounts of €37.3 million and combined U.S.

Dollar notional amounts of $499.0 million as of January 3, 2021, and combined Euro notional amounts of €105.8 million and combined U.S.

Dollar notional amounts of $5.6 million as of December 29, 2019.

The net gains and losses on these derivatives, combined with the gains and losses on the remeasurement of the hedged intercompany loans were not material for each of the fiscal years 2020 and 2019.

We paid $4.6 million and $1.3 million during the fiscal years 2020 and 2019, respectively, from the settlement of these hedges.

During fiscal year 2018, we designated a portion of the 2026 Notes to hedge our investments in certain foreign subsidiaries.

The net gains and losses on these derivatives, combined with the gains and losses on the remeasurement of the hedged intercompany loans were not material.

During fiscal year 2018, we designated a portion of the 2026 Notes to hedge its investments in certain foreign subsidiaries.

Unrealized translation adjustments from a portion of the 2026 Notes were included in the foreign currency translation component of AOCI, which offsets translation adjustments on the underlying net assets of foreign subsidiaries.

The cumulative translation gains or losses will remain in accumulated other comprehensive income ("AOCI") until the foreign subsidiaries are liquidated or sold.

As of January 3, 2021, the total notional amount of the 2026 Notes that was designated to hedge investments in foreign subsidiaries was €497.2 million.

The unrealized foreign exchange losses (gains) recorded in AOCI related to the net investment hedge were $49.6 million and $(4.9) million during the fiscal years 2020 and 2019, respectively.

During fiscal year 2018, we designated the 2021 Notes to hedge our investments in certain foreign subsidiaries.

Unrealized translation adjustments from the 2021 Notes were included in the foreign currency translation component of AOCI, which offsets translation adjustments on the underlying net assets of foreign subsidiaries.

The cumulative translation gains or losses will remain in AOCI until the foreign subsidiaries are liquidated or sold.

During the second quarter of fiscal year 2020, we removed the hedging relationship of the first €100.0 million of the 2021 Notes and investments in certain foreign subsidiaries.

During the third quarter of fiscal year 2020, we removed the hedging relationship of the remaining €200.0 million of the 2021 Notes and investments in certain foreign subsidiaries.

The unrealized foreign exchange losses (gains) recorded in AOCI related to the net investment hedge were $1.8 million and $(8.0) million during the fiscal years 2020 and 2019, respectively.

As of January 2,

2022, the total notional amount of the 2026 Notes that was designated to hedge investments in foreign subsidiaries was €497.2 million.

The unrealized foreign exchange (gains) losses recorded in AOCI related to the net investment hedge were $(33.2) million, $49.6 million and $4.9 million during the fiscal years 2021, 2020 and 2019, respectively.

During fiscal year 2019, we entered into a cross-currency swap designated as a net investment hedge to hedge the Euro currency exposure of our net investment in certain foreign subsidiaries.

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Changes in the fair value of this swap are recorded in equity as a component of AOCI in the same manner as foreign currency translation adjustments.

In assessing the effectiveness of this hedge, we use a method based on changes in spot rates to measure the impact of the foreign currency exchange rate fluctuations on both our foreign subsidiary net investment and the related swap.

Under this method, changes in the fair value of the hedging instrument other than those due to changes in the spot rate are initially recorded in AOCI as a translation adjustment, and then are amortized into other (income) expense, net in the condensed consolidated statement of operations using a systematic and rational method over the instrument’s term.

In assessing the effectiveness of this hedge, we use a method based on changes in spot rates to measure the impact of the foreign currency exchange rate fluctuations on both its foreign subsidiary net investment and the related swap.

Under this method, changes in the fair value of the hedging instrument other than those due to changes in the spot rate are initially recorded in AOCI as a translation adjustment, and then are amortized into other (income) expense, net in the consolidated statement of operations using a systematic and rational method over the instrument’s term.

Changes in the fair value associated with the effective portion (i.e.

those changes due to the spot rate) are recorded in AOCI as a translation adjustment and are released and recognized in earnings only upon the sale or liquidation of the hedged net investment.

The cross-currency swap has an initial notional value of €197.4 million or $220.0 million and matures on November 15, 2021.

Interest on the cross-currency swap is payable semi-annually, in Euro, on May 15th and November 15th of each year based on the Euro notional value and a fixed rate of 2.47%.

We receive interest in U.S.

The cross-currency swap had an initial notional value of €197.4 million or $220.0 million and matured on November 15, 2021.

Interest on the cross-currency swap was payable semi-annually, in Euro, on May 15th and November 15th of each year based on the Euro notional value and a fixed rate of 2.47%.

We received interest in U.S.

dollars on May 15th and November 15th of each year based on the U.S.

dollar equivalent of the Euro notional value and a fixed rate of 5.00%.

As of January 3, 2021, the fair value of the cross-currency swap was $(18.3) million, which was recorded in AOCI.

The unrealized foreign exchange (losses) gains recorded in AOCI related to cross-currency swap were $(18.6) million and $0.3 million dur ing the fiscal years 2020 and 2019, respectively.

During the second and third quarters of fiscal year 2020, we entered into forward foreign exchange contracts, designated as cash flow hedges, to hedge the 2021 Notes.

During fiscal year 2020, we entered into forward foreign exchange contracts, designated as cash flow hedges, to hedge the 2021 Notes.

The effective portion of the gain or loss of the cash flow hedges were reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged transaction affected earnings.

During the second quarter of fiscal year 2021, we redeemed all of its outstanding 2021 Notes and settled the forward foreign exchange contracts that were designated as cash flow hedges.

The foreign exchange losses (gains) recorded in earnings related to the cash flow hedges were $9.5 million and $(29.3) million d ur ing the fiscal years 2021 and 2020, respectively.

During fiscal year 2021, we entered into forward foreign exchange contracts, designated as cash flow hedges, to hedge a portion of the 2026 Notes.

The effective portion of the gain or loss of the cash flow hedges will be reported as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged transaction affects earnings.

As of January 3, 2021, the total notional amount of the forward foreign exchange contracts that were designated as cash flow hedges was €300.0 million.

The unrealized foreign exchange gains recorded in earnings related to the cash flow hedges were $29.3 million during the fiscal year 2020.

During the fourth quarter of fiscal year 2021, we settled the forward foreign exchange contracts that were designated as cash flow hedges.

The foreign exchange loss recorded in earnings related to the cash flow hedges was $8.7 million during fiscal year 2021.

During fiscal year 2021, we entered into two interest rate swaption agreements (together, the “Swaptions”) with expiration dates of September 30, 2021 in anticipation of issuing notes to fund the acquisition of BioLegend.

The first Swaption had a term of 2 months and hedged an anticipated 10-year note offering, with a notional value of $500.0 million.

The second Swaption had a term of 2 months and hedged an anticipated 7-year note offering, with a notional value of $500.0 million.

We designated the Swaptions as qualifying hedging instruments and accounted for these derivatives as cash flow hedges.

On September 8, 2021, we sold both Swaptions, and as a result, recognized a loss of $8.2 million in interest and other expense, net during the fiscal year 2021.

We also recorded other comprehensive income of $3.8 million, which will be amortized to interest and other expense, net over the 7 and 10 year terms, respectively, of the related permanent financing.

We do not expect any material net pre-tax gains or losses to be reclassified from accumulated other comprehensive (loss) income into interest and other expense, net within the next twelve months.

See Note 19, Derivatives and Hedging Activities, in the Notes to Consolidated Financial Statements for a detailed discussion of our derivative instruments and hedging activities.

We are exposed to market risk, including changes in interest rates and currency exchange rates.

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The intent of these economic hedges is to offset gains and losses that occur on the underlying exposures, with gains and losses resulting from the forward contracts that hedge these exposures.

Moreover, we are able to partially mitigate the impact that fluctuations in currencies have on our net income as a result of our manufacturing facilities located in countries outside the United States, material sourcing and other spending which occur in countries outside the United States, resulting in natural hedges.

Moreover, we are able to partially mitigate the impact that fluctuations in currencies have on our net income as a result of our manufacturing facilities located in countries outside the

United States, material sourcing and other spending which occur in countries outside the United States, resulting in natural hedges.

Although we attempt to manage our foreign currency exchange risk through the above activities, when the U.S.

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Our Value-at-Risk computation is based on the Monte Carlo simulation, utilizing a 95% confidence interval and a holding period of 30 days.

As of January 3, 2021, this computation estimated that there is a 5% chance that the market value of the underlying exposures and the corresponding derivative instruments either increase or decrease due to foreign currency fluctuations by more than $0.5 million.

As of January 2, 2022, this computation estimated that there is a 5% chance that the market value of the underlying exposures and the corresponding derivative instruments either increase or decrease due to foreign currency fluctuations by more than $31,500.

This Value-At-Risk measure is consistent with our financial statement disclosures relative to our foreign currency hedging program.

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Interest Rate Risk.

As of January 3, 2021, we had $158.6 million in outstanding borrowings under our senior unsecured revolving credit facility.

As described above in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources,” amounts drawn under our senior unsecured revolving credit facility

bear interest at variable rates.

As of January 2, 2022, we had $500.0 million in outstanding borrowings under our senior unsecured revolving credit and term loan facilities.

Amounts drawn under our senior unsecured revolving credit and term loan facilities bear interest at variable rates;

all of our other debt bear interest at fixed rates.

Our cash and cash equivalents, for which we receive interest at variable rates, were $618.3 million at January 2, 2022.

7 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk