DERIVATIVE FINANCIAL INSTRUMENTS

3 Months Ended

Apr. 01, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

(7) DERIVATIVE FINANCIAL INSTRUMENTS

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 Condensed 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 accumulated other comprehensive income (“AOCI”) until either the sale or substantially complete liquidation of the related subsidiaries.

Fair value of derivative instruments at April 1, 2023 and December 31, 2022 are as follows:

		April 1,		December 31,
Derivatives designated as hedging instruments:	Balance sheet location	2023		2022
Commodity forward contracts	Other accrued expenses	$	(1,971)	$	(3,854)
Foreign currency forward contracts	Prepaid expenses and other assets		142		83
Cross currency swap contracts	Prepaid expenses and other assets		4,747		5,385
Cross currency swap contracts	Other accrued expenses		(125)		(210)
		$	2,793	$	1,404

(7) DERIVATIVE FINANCIAL INSTRUMENTS – CONTINUED

Gains (losses) on derivatives recognized in the Condensed Consolidated Statements of Earnings for the thirteen weeks ended April 1, 2023 and March 26, 2022 are as follows:

		Thirteen weeks ended
		April 1,		March 26,
Derivatives designated as hedging instruments:	Statement of earnings location	2023		2022
Commodity forward contracts	Product cost of sales	$	(3,985)	$	2,043
Foreign currency forward contracts	Other income		97		151
Interest rate hedge amortization	Interest expense		(16)		(16)
Cross currency swap contracts	Interest expense		446		774
		$	(3,458)	$	2,952

Cash Flow Hedges

The Company enters into steel hot rolled coil (“HRC”) commodity forward contracts that qualify as a cash flow hedge of the variability in cash flows attributable to future steel purchases. During the first quarter of 2023, the Company entered into additional steel 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 $15,760 for the total purchase of 18,500 short tons. At April 1, 2023, the forward contracts had a notional amount of $15,760 for the total purchase of 18,500 short tons from September 2023 to March 2024. 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.

The Company enters into natural gas commodity forward contracts that qualify as a cash flow hedge of the variability in cash flows attributable to future natural gas purchases. During the first quarter of 2023, the Company entered into additional natural gas commodity forward contracts that also qualify as a cash flow hedge. The forward contracts had a notional amount of $1,206 for the total purchase of 299,000 mmBtu from July 2023 to March 2025. At April 1, 2023, the forward contracts had a notional amount of $5,772 for the total purchase of 1,179,000 mmBtu from April 2023 to March 2025. The gain (loss) realized upon settlement will be recorded in “Product cost of sales” in the Condensed Consolidated Statements of Earnings in the period consumed.

During the first quarter of 2023, the Company entered into diesel fuel commodity forward contracts that qualify as a cash flow hedge of the variability in cash flows attributable to future diesel fuel purchases. The forward contracts had a notional amount of $755 for the total purchase of 1,890,000 gallons from July 2023 to March 2024. The gain (loss) realized upon settlement will be recorded in “Product cost of sales” in the Condensed Consolidated Statements of Earnings in the period consumed.

During the first quarter of 2023, 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 April 2023 and has a notional amount to sell $1,800 in exchange for a stated amount of Euros.

(7) DERIVATIVE FINANCIAL INSTRUMENTS – CONTINUED

Net Investment Hedges

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 in 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.

The Company designated the initial 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) recorded as cumulative foreign currency translation within AOCI. Net interest receipts will be recorded as a reduction of interest expense over the life of the CCS.

During the second half of 2022, the Company settled the DKK CCS and received proceeds of $3,532. Due to the sale of the offshore wind energy structures business in the fourth quarter of 2022, the Company reclassified the cumulative net investment hedge gain of $4,827 ($3,620 after tax) from OCI to “Loss from divestiture of offshore wind energy structures business” in the Consolidated Statements of Earnings at December 31, 2022 in the Form 10-K.

Key terms of the Euro CCS are as follows:

	Notional			Swapped	Set Settlement
Currency	Amount		Termination Date	Interest Rate	Amount
Euro	$	80,000	April 1, 2024	2.825%	€	71,550