DERIVATIVE FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 26, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company manages interest rate risk, commodity price risk, and foreign currency risk related to foreign currency denominated transactions and investments in foreign subsidiaries. Depending on the circumstances, the Company may manage these risks by utilizing derivative financial instruments. Some derivative financial instruments are marked to market and recorded in the Company's consolidated statements of earnings, while others may be accounted for as fair value, cash flow, or net investment hedges. Derivative financial instruments have credit and market risk. The Company manages these risks of derivative instruments by monitoring limits as to the types and degree of risk that can be taken, and by entering into transactions with counterparties who are recognized, stable multinational banks.

Fair value of derivative instruments at September 26, 2020 and December 28, 2019 are as follows:


Derivatives designated as hedging instruments:	Balance sheet location	September 26, 2020		December 28, 2019


Foreign currency forward contracts	Prepaid expenses and other assets	$	1,021	$	2,119

Cross currency swap contracts	Prepaid expenses and other assets	2,527		1,128

		$	3,548	$	3,247

Gains (losses) on derivatives recognized in the condensed consolidated statements of earnings for the thirteen and thirty-nine weeks ended September 26, 2020 and September 28, 2019 are as follows:


		Thirteen weeks ended				Thirty-nine weeks ended
	Statements of earnings location	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Commodity forward contracts	Product cost of sales	$	—	$	(1,329)	$	—	$	(1,425)
Foreign currency forward contracts	Other income	116		123		146		827
Foreign currency forward contracts	Product sales	1,017		—		1,169		—
Interest rate hedge amortization	Interest expense	(16)		(16)		(48)		(48)
Cross currency swap contracts	Interest expense	649		769		2,111		2,096
		$	1,766	$	(453)	$	3,378	$	1,450

Cash Flow Hedges

In 2019, the Company entered into steel hot rolled coil (HRC) forward contracts that qualified as a cash flow hedge of the variability in cash flows attributable to future steel purchases. The forward contracts had a notional amount of $12,128 for the purchase of 3,500 short tons for each month from May 2019 to September 2019. The gain/(loss) realized upon settlement is recorded in product cost of sales in the condensed consolidated statements of earnings over average inventory turns. The forward contracts were closed out in the third quarter of 2019.

In May 2020, a Brazilian subsidiary with a Real functional currency entered into foreign currency forward contracts to mitigate foreign currency risk related to a customer order with components purchased in Euros. The forward contract, which qualifies as a cash flow hedge, has a final maturity date of December 2020 and a notional amount to buy 4,500 euros in exchange for a stated amount of Brazilian Real. In March 2020, a subsidiary with a Euro functional currency entered into foreign currency forward contracts to mitigate foreign currency risk related to a large customer order denominated in U.S. dollars. The forward contract, which qualifies as a cash flow hedge, has a final maturity date of June 2021 and a notional amount to sell $27,500 in exchange for a stated amount of Euros.

Net Investment Hedges

In the second quarter of 2020, the Company early settled their Australian dollar denominated forward currency contracts and received proceeds of $11,983. In the second quarter of 2019, all existing net investment hedges were early settled and the Company received proceeds of $11,184. The proceeds/gain from these settlements will remain in Other Comprehensive Income (OCI) until either the sale or substantially complete liquidation of the related subsidiaries.

In the second quarter of 2019, the Company entered into two fixed-for-fixed cross currency swaps (“CCS”), swapping U.S. dollar principal and interest payments on a portion of its 5.00% senior unsecured notes due 2044 for Danish krone (DKK) and Euro denominated payments. The CCS were entered into in order to mitigate foreign currency risk on the Company's Euro and DKK investments and to reduce interest expense. Interest is exchanged twice per year on April 1 and October 1.

Key terms of the two CCS are as follows:


Currency	Notional Amount		Termination Date	Swapped Interest Rate	Set Settlement Amount
Danish Krone (DKK)	$	50,000	April 1, 2024	2.68%	DKK 333,625
Euro	$	80,000	April 1, 2024	2.825%	€71,550

The Company designated the full notional amount of the two CCS ($130,000) as a hedge of the net investment in certain Danish and European subsidiaries under the spot method, with all changes in the fair value of the CCS that are included in the assessment of effectiveness (changes due to spot foreign exchange rates) are recorded as cumulative foreign currency translation within OCI, and will remain in OCI until either the sale or substantially complete liquidation of the related subsidiaries. Net interest receipts will be recorded as a reduction of interest expense over the life of the CCS.