DERIVATIVE FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 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. The Company had open foreign currency forward contracts that are marked to market at December 25, 2021 and December 26, 2020, which are insignificant and thus excluded from the tables below. 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 December 25, 2021 and December 26, 2020 are as follows:


Derivatives designated as hedging instruments:	Balance sheet location	December 25, 2021		December 26, 2020
Commodity forward contracts	Accrued expenses	$	(5,802)	$	—
Foreign currency forward contracts	Prepaid expenses and other assets	149		724
Foreign currency forward contracts	Accrued expenses	(118)		—
Cross currency swap contracts	Prepaid expenses and other assets	1,764		600
Cross currency swap contracts	Accrued expenses	—		(7,235)
		$	(4,007)	$	(5,911)

Gains (losses) on derivatives recognized in the consolidated statements of earnings for the years ended December 25, 2021, December 26, 2020, and December 28, 2019 are as follows:



Derivatives designated as hedging instruments:	Statements of earnings location	2021		2020		2019
Commodity forward contracts	Product cost of sales	$	25,821	$	—	$	(2,130)

Foreign currency forward contracts	Product Sales	—		1,598		—
Foreign currency forward contracts	Other income (expense)	(40)		187		950
Interest rate contracts	Interest expense	(64)		(64)		(64)
Cross currency swap contracts	Interest expense	2,780		2,738		2,823
		$	28,497	$	4,459	$	1,579

Cash Flow Hedges

During 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 $93,498 for the total purchase of 86,100 short tons from May 2021 to December 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.

In 2019, the Company entered into steel hot rolled coil (HRC) forward contracts which qualified as a cash flow hedge of the variability in the cash flows attributable to future steel purchases. In 2019, 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 was recorded in product cost of sales in the consolidated statements of earnings over average inventory turns.

During 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 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, matured in December 2021 and a notional amount to sell $2,000 in exchange for a stated amount of Euros.

In 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 contracts, which qualify as a cash flow hedge, matured in December 2020 and a notional amount to buy 4,500 euros in exchange for a stated amount of Brazilian Real. In 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 contracts, which qualify as a cash flow hedge, matured in 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 its Australian dollar denominated foreign currency forward contracts and received proceeds of $11,983. In 2019, all net investment hedges incepted in 2018 were early settled and the Company received proceeds of $11,184. Amounts will remain in 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	Net 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.