Derivative Financial Instruments

12 Months Ended

Dec. 27, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Our derivative financial instruments reduce our exposure to fluctuations in foreign exchange and interest rates. We predominantly designate our derivative financial instruments as cash flow hedges.

Counterparties expose us to credit loss in the event of non-performance on hedges. We monitor our exposure to counterparty non-performance risk both at inception of the hedge and at least quarterly thereafter.

Fluctuations in the value of the derivative instruments are generally offset by changes in the cash flows or fair value of the underlying exposures being hedged. A cash flow hedge requires that the change in the fair value of a derivative instrument be recognized in other comprehensive income, a component of shareholders’ equity, and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings and is presented in the same income statement line item as the earnings effect of the hedged item.

Certain of our derivative instruments contain provisions that require the current credit relationship between us and our counterparty to be maintained throughout the term of the derivative instruments. If that credit relationship changes, certain provisions could be triggered, and the counterparty could request immediate collateralization of derivative instruments in net liability position above a certain threshold. The aggregate fair value of all derivative instruments with a credit-risk-related contingent feature that are in a liability position on December 27, 2019 is $31.0 million. As of December 27, 2019, no triggering event has occurred and thus we are not required to post collateral. If the credit-risk-related contingent features underlying these agreements were triggered on December 27, 2019, we would not be required to post collateral to its counterparty because the collateralization threshold has not been met.

Derivative instruments are disclosed on a gross basis. There are various rights of setoff associated with our derivative instruments that are subject to an enforceable master netting arrangement or similar agreements. Although various rights of setoff and master netting arrangements or similar agreements may exist with the individual counterparties, individually, these financial rights are not material.

Foreign Currency Hedges

We are exposed to fluctuations in currency exchange rates against the U.S. dollar on our results of operations and financial condition and we mitigate that exposure by entering into foreign currency forward contracts. Certain of our subsidiaries periodically enter into foreign currency forward contracts in order to hedge portions of forecasted sales or cost of sales denominated in foreign currencies with forward contracts and options, which generally expire within one year. At December 27, 2019, our foreign currency forward contracts will hedge a portion of our 2020 foreign currency exposure.

We designate our foreign currency forward contracts as single-purpose cash flow hedges of forecasted cash flows.

17. Derivative Financial Instruments (continued)

We had the following outstanding foreign currency forward contracts as of December 27, 2019:



Foreign Currency Contracts Qualifying as Cash Flow Hedges:		Notional Amount
British pound	£	14.5	million
Chilean peso	CLP	8,944.8	million
Euro	€	49.5	million
Japanese yen	JPY	4,746.9	million
Korean won	KRW	33,855.0	million

Interest Rate Contracts

We are exposed to fluctuations in variable interest rates on our results of operations and financial condition, and we mitigate that exposure by entering into interest rate swaps, from time to time. During 2018, we entered into interest rate swaps in order to hedge the risk of the fluctuation on future interest payments related to a portion of our variable rate LIBOR-based borrowings through 2028.

Gains or losses on interest rate swaps are recorded in other comprehensive income and will be subsequently reclassified into earnings as interest expense as the interest expense on debt is recognized in earnings. At December 27, 2019, the notional value of interest rate contracts outstanding was $400 million, $200 million maturing in 2024 and the remaining $200 million maturing in 2028. Refer to Note 11, “Debt and Finance Lease Obligations.”

The following table reflects the fair values of derivative instruments, which are designated as level 2 in the fair value hierarchy, as of December 27, 2019 and December 28, 2018 (U.S. dollars in millions):



	Derivatives Designated as Hedging Instruments⁽¹⁾
	Foreign exchange contracts				Interest Rate Swaps				Total
Balance Sheet Location:	December 27, 2019		December 28, 2018		December 27, 2019		December 28, 2018		December 27, 2019			December 28, 2018
Asset derivatives:
Prepaid expenses and other current assets	$	1.7	$	1.6	$	—	$	—	$	1.7	⁽²⁾	$	1.6
Total asset derivatives	$	1.7	$	1.6	$	—	$	—	$	1.7		$	1.6

Liability derivatives:
Accounts payable and accrued expenses	$	0.7	$	0.8	$	—	$	—	$	0.7	⁽²⁾	$	0.8
Other non-current liabilities	—		—		30.3		7.6		30.3		⁽²⁾	7.6
Total liability derivatives	$	0.7	$	0.8	$	30.3	$	7.6	$	31.0		$	8.4

⁽¹⁾ See Note 18, "Fair Value Measurements," for fair value disclosures.

⁽²⁾ We expect that $1.0 million of the fair value of hedges recognized as a net gain in accumulated other comprehensive income ("AOCI") will be transferred to earnings during the next 12 months, and the remaining net loss of $31.0 million in AOCI over a period of 9 years, along with the earnings effect of the related forecasted transactions.

17. Derivative Financial Instruments (continued)

The fair value of our derivatives related to our foreign currency cash flow hedges was in a net asset position of $1.0 million as of December 27, 2019 and a net asset position of $0.8 million as of December 28, 2018. For foreign currency hedges, these fluctuations are primarily driven by the strengthening or weakening of the U.S. dollar compared to currencies being hedged relative to the contracted exchange rates and the settling of a number of contracts throughout 2019. During 2019, certain derivative contracts to hedge the Euro, British pound, and Japanese yen relative to our sales were settled; certain derivative contracts to hedge the Korean won relative to our cost of sales were also settled. The change in 2019 was primarily related to the settling of the majority of the contracts throughout 2019.

The following table reflects the effect of derivative instruments on the Consolidated Statements of Operations for the years ended December 27, 2019 and December 28, 2018 (U.S. dollars in millions):



Derivatives in Cash Flow Hedging Relationships	Amount of (Loss) Gain Recognized in Other Comprehensive Income on Derivatives (Effective Portion)						Location of (Loss) Gain Reclassified from AOCI into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
	Year ended							Year ended
	December 27, 2019			December 28, 2018				December 27, 2019			December 28, 2018
Foreign exchange contracts	$	(0.1	)	$	1.6		Net sales	$	8.1		$	5.3
Foreign exchange contracts	0.2			0.6			Cost of products sold	1.5			—
Interest rate swaps, net of tax	(19.8		)	(6.6		)	Interest expense	(2.4		)	(1.5		)
Total	$	(19.7	)	$	(4.4	)		$	7.2		$	3.8