DERIVATIVE FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 25, 2021

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. Any gains or losses from net investment hedge activities remain in OCI until either the sale or substantially complete liquidation of the related subsidiaries.

Fair value of derivative instruments at September 25, 2021 and December 26, 2020 are as follows:


Derivatives designated as hedging instruments:	Balance sheet location	September 25, 2021		December 26, 2020

Commodity forward contracts	Prepaid expenses and other assets	$	7,623	$	—
Foreign currency forward contracts	Prepaid expenses and other assets	—		724
Foreign currency forward contracts	Accrued expenses	(84)		—
Cross currency swap contracts	Prepaid expenses and other assets	1,309		600
Cross currency swap contracts	Accrued expenses	(1,847)		(7,235)
		$	7,001	$	(5,911)

Gains (losses) on derivatives recognized in the condensed consolidated statements of earnings for the thirteen and thirty-nine weeks ended September 25, 2021 and September 26, 2020 are as follows:


		Thirteen weeks ended				Thirty-nine weeks ended
	Statements of earnings location	September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020
Commodity forward contracts	Product cost of sales	$	9,870	$	—	$	10,140	$	—
Foreign currency forward contracts	Other income	187		116		123		146
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	691		649		2,060		2,111
		$	10,732	$	1,766	$	12,275	$	3,378

Cash Flow Hedges

During the first three quarters of 2021, the Company entered into steel hot rolled coil (HRC) forward contracts that qualify as a cash flow hedge of the variability in cash flows attributable to future steel purchases. The forward contracts had a notional amount of $39,731 for the total purchase of 41,000 short tons from May 2021 to June 2022. The gain/(loss) realized upon settlement will be recorded in product cost of sales in the condensed consolidated statements of earnings over average inventory turns.

During the first half of 2021, 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 contracts, which qualify as a cash flow hedge, matured in July and September 2021 and had notional amounts to buy 3,800 euros in exchange for a stated amount of Brazilian Real. During the first half of 2021, a subsidiary with a Euro functional currency entered into a foreign currency forward contract to mitigate foreign currency risk related to a large customer order denominated in U.S. dollars. The forward contract, which qualifies as a fair value hedge, matures in December 2021 and has a notional amount to sell $2,000 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. The proceeds/gain from these settlements (net of tax) will remain in Other Comprehensive Income (OCI) until either the sale or substantially complete liquidation of the related subsidiaries.

In 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. Net interest receipts will be recorded as a reduction of interest expense over the life of the CCS.