Financial Instruments and Derivatives

3 Months Ended

Mar. 29, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The following table sets forth the carrying amounts and fair values of the Company’s significant financial instruments for which the carrying amount differs from the fair value.


	March 29, 2020						December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt, net of current portion	$	1,187,904	$	1,294,469	$	1,193,135	$	1,351,397

The carrying value of cash and cash equivalents, short-term debt and long-term variable-rate debt approximates fair value. The fair value of long-term debt is determined based on recent trade information in the financial markets of the Company’s public debt or is determined by discounting future cash flows using interest rates available to the Company for issues with similar terms and maturities. It is considered a Level 2 fair value measurement.

Cash Flow Hedges

At March 29, 2020 and December 31, 2019, the Company had derivative financial instruments outstanding to hedge anticipated transactions and certain asset and liability related cash flows. These contracts, which have maturities ranging to December 2020, qualify as cash flow hedges under U.S. GAAP. For derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on the derivative instrument is reported as a component of other comprehensive income 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.

Commodity Cash Flow Hedges

The Company has entered into certain derivative contracts to manage the cost of anticipated purchases of natural gas and aluminum. At March 29, 2020, natural gas swaps covering approximately 4.0 million MMBTUs were outstanding. These contracts represent approximately 65% of anticipated usage in the United States, Canada, and Mexico for the remainder of 2020. Additionally, the Company had swap contracts covering 1,089 metric tons of aluminum, representing approximately 23% of anticipated usage for the remainder of 2020. The fair values of the Company’s commodity cash flow hedges netted to a loss position of $(2,900) and $(1,625) at March 29, 2020 and December 31, 2019 respectively. The amount of the loss included in Accumulated Other Comprehensive Loss at March 29, 2020, that is expected to be reclassified to the income statement during the next twelve months is $(2,543).

Foreign Currency Cash Flow Hedges

The Company has entered into forward contracts to hedge certain anticipated foreign currency denominated sales, purchases, and capital spending expected to occur in 2020. The net positions of these contracts at March 29, 2020 were as follows (in thousands):


Currency	Action	Quantity
Colombian peso	purchase	11,703,686
Mexican peso	purchase	250,095
Polish zloty	purchase	66,513
Czech koruna	purchase	30,328
Canadian dollar	purchase	15,566
British pound	purchase	4,834
Turkish lira	purchase	2,411


Swedish krona	sell	(2,898)
Euro	sell	(21,170)
Russian ruble	sell	(142,632)

The fair value of foreign currency cash flow hedges related to forecasted sales and purchases netted to a loss position of $(3,609) at March 29, 2020 and a gain position of $1,058 at December 31, 2019. Losses of $(3,609) are expected to be reclassified from accumulated other comprehensive income to the income statement during the next twelve months. In addition, the Company occasionally enters into forward contracts to hedge certain foreign currency cash flow

transactions related to construction in progress. Gains or losses from these hedges are reclassified from accumulated other comprehensive income and included in the carrying value of the related fixed assets acquired. The net positions of these contracts were immaterial as of March 29, 2020 and December 31, 2019.

Net Investment Hedge

In January 2020, the Company entered into a cross-currency swap agreement with a notional amount of $250,000 to effectively convert a portion of the Company's fixed-rate, U.S. dollar denominated debt, including the semi-annual interest payments, to fixed-rate euro-denominated debt. The swap agreement had an original maturity of November 1, 2024 and provided for the Company to receive semi-annual interest payments in U.S. dollars at a rate of 5.75% and pay interest in euros at a rate of 3.856%. The risk management objective was to manage foreign currency risk relating to net investments in certain European subsidiaries denominated in foreign currencies. As a result of significant strengthening of the U.S. dollar, as well as a reduction in the differential between U.S. and European interest rates, the fair market value of the swap position appreciated significantly during the first quarter of 2020. In March 2020, the Company terminated the swap agreement and received a net cash settlement of $14,480. The Company recorded this foreign currency translation gain in "Accumulated other comprehensive loss," net of a tax provision of $7,581.

Other Derivatives

The Company routinely enters into forward contracts or swaps to economically hedge the currency exposure of intercompany debt and foreign currency denominated receivables and payables. The Company does not apply hedge accounting treatment under ASC 815 for these instruments. As such, changes in fair value are recorded directly to income and expense in the periods that they occur.

The net positions of these contracts at March 29, 2020, were as follows (in thousands):


Currency	Action	Quantity
Colombian peso	purchase	12,808,000
Mexican peso	purchase	460,090
Canadian dollar	purchase	6,199
Indonesian rupiah	sell	(29,085)

The fair value of the Company’s other derivatives position was a loss of $(145) and a gain of $54 at March 29, 2020 and December 31, 2019, respectively.

The following table sets forth the location and fair values of the Company’s derivative instruments at March 29, 2020 and December 31, 2019:


Description	Balance Sheet Location	March 29, 2020		December 31, 2019
Derivatives designated as hedging instruments:


Commodity Contracts	Accrued expenses and other	$	(2,900)	$	(1,625)

Foreign Exchange Contracts	Prepaid expenses	$	366	$	1,236
Foreign Exchange Contracts	Accrued expenses and other	$	(3,976)	$	(178)
Derivatives not designated as hedging instruments:
Foreign Exchange Contracts	Prepaid expenses	$	124	$	88

Foreign Exchange Contracts	Accrued expenses and other	$	(269)	$	(34)

While certain of the Company’s derivative contract arrangements with its counterparties provide for the ability to settle contracts on a net basis, the Company reports its derivative positions on a gross basis. There are no collateral arrangements or requirements in these agreements.

The following tables set forth the effect of the Company’s derivative instruments on financial performance for the three months ended March 29, 2020 and March 31, 2019:


Description	Amount of Gain or (Loss) Recognized in OCI on Derivatives		Location of Gain or (Loss) Reclassified from Accumulated OCI Into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI Into Income
Derivatives in Cash Flow Hedging Relationships:
Three months ended March 29, 2020
Foreign Exchange Contracts	$	(4,978)	Net sales	$	(1,138)
			Cost of sales	$	827
Commodity Contracts	$	(2,355)	Cost of sales	$	(1,079)
Three months ended March 31, 2019
Foreign Exchange Contracts	$	1,930	Net sales	$	317
			Cost of sales	$	(288)
Commodity Contracts	$	1,092	Cost of sales	$	435


Description	Gain or (Loss) Recognized		Location of Gain or (Loss) Recognized in Income Statement
Derivatives not Designated as Hedging Instruments:
Three months ended March 29, 2020
Foreign Exchange Contracts	$	—	Cost of sales
	$	(4,917)	Selling, general and administrative
Three months ended March 31, 2019
Foreign Exchange Contracts	$	—	Cost of sales
	$	(1,465)	Selling, general and administrative


	Three months ended March 29, 2020						Three months ended March 31, 2019
Description	Revenue		Cost of sales		Revenue		Cost of sales
Total amount of income and expense line items presented in the Condensed Consolidated Statements of Income	$	(1,138)	$	(252)	$	317	$	147















Gain or (loss) on cash flow hedging relationships:
Foreign exchange contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income into net income	$	(1,138)	$	827	$	317	$	(288)


Commodity contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive income into net income	$	—	$	(1,079)	$	—	$	435