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FINANCIAL INSTRUMENTS | 3 Months Ended
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Mar. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
FINANCIAL INSTRUMENTS | FINANCIAL INSTRUMENTS The Company is exposed to market risk from changes in foreign currency exchange rates, interest rates, stock prices and commodity prices. As part of the Company’s risk management program, a variety of financial instruments such as interest rate swaps, currency swaps, purchased currency options, foreign exchange contracts and commodity contracts may be used to mitigate interest rate exposure, foreign currency exposure and commodity price exposure. If the Company elects to do so and if the instrument meets the criteria specified in ASC 815, Derivatives and Hedging, management designates its derivative instruments as cash flow hedges, fair value hedges or net investment hedges. Generally, commodity price exposures are not hedged with derivative financial instruments and instead are actively managed through customer pricing initiatives, procurement-driven cost reduction initiatives and other productivity improvement projects. Financial instruments are not utilized for speculative purposes. A summary of the fair values of the Company’s derivatives recorded in the Condensed Consolidated Balance Sheets at March 30, 2024 and December 30, 2023 is as follows:
(Millions of Dollars) | Balance Sheet Classification |  | March 30, 2024 |  | December 30, 2023 |  | Balance Sheet Classification |  | March 30, 2024 |  | December 30, 2023
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |
Foreign Exchange Contracts Cash Flow | Other current assets |  | $ | 2.9 |  |  | $ | 0.1 |  |  | Accrued expenses |  | $ | 0.3 |  |  | $ | 4.9 |
Non-derivative designated as hedging instrument: |  |  |  |  |  |  |  |  |  |  |
Net Investment Hedge |  |  | $ | — |  |  | $ | — |  |  | Short-term borrowings |  | $ | 357.1 |  |  | $ | 399.7 |
Total designated as hedging instruments |  |  | $ | 2.9 |  |  | $ | 0.1 |  |  |  |  | $ | 357.4 |  |  | $ | 404.6 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |
Foreign Exchange Contracts | Other current assets |  | $ | 5.4 |  |  | $ | 8.4 |  |  | Accrued expenses |  | $ | 8.6 |  |  | $ | 13.0 |
Total |  |  | $ | 8.3 |  |  | $ | 8.5 |  |  |  |  | $ | 366.0 |  |  | $ | 417.6 |
The counterparties to all of the above mentioned financial instruments are major international financial institutions. The Company is exposed to credit risk for net exchanges under these agreements, but not for the notional amounts. The credit risk is limited to the asset amounts noted above. The Company limits its exposure and concentration of risk by contracting with diverse financial institutions and does not anticipate non-performance by any of its counterparties. The Company considers non-performance risk of its counterparties at each reporting period and adjusts the carrying value of these assets accordingly. The risk of default is considered remote. As of March 30, 2024 and December 30, 2023, there were no assets that had been posted as collateral related to the above mentioned financial instruments. During the three months ended March 30, 2024 and April 1, 2023, cash flows related to derivatives, including those that are separately discussed below, resulted in net cash paid of $15.4 million and $4.6 million, respectively. CASH FLOW HEDGES There were after-tax mark-to-market losses of $37.5 million and $42.5 million as of March 30, 2024 and December 30, 2023, respectively, reported for cash flow hedge effectiveness in Accumulated other comprehensive loss. An after-tax loss of $1.9 million is expected to be reclassified to earnings as the hedged transactions occur or as amounts are amortized within the next twelve months. The ultimate amount recognized will vary based on fluctuations of the hedged currencies and interest rates through the maturity dates. The tables below detail pre-tax amounts of derivatives designated as cash flow hedges in Accumulated other comprehensive loss during the periods in which the underlying hedged transactions affected earnings for the three months ended March 30, 2024 and April 1, 2023:
|  | Year-to-Date 2024
(Millions of Dollars) |  | Gain (Loss) Recorded in OCI |  | Classification of Gain (Loss) Reclassified from OCI to Income |  | Gain (Loss) Reclassified from OCI to Income |  | Gain (Loss) Recognized in Income on Amounts Excluded from Effectiveness Testing
Interest Rate Contracts |  | $ | — |  |  | Interest expense |  | $ | (1.5) |  |  | $ | — |
Foreign Exchange Contracts |  | $ | 7.0 |  |  | Cost of sales |  | $ | 1.7 |  |  | $ | — |
|  | Year-to-Date 2023
(Millions of Dollars) |  | Gain (Loss) Recorded in OCI |  | Classification of Gain (Loss) Reclassified from OCI to Income |  | Gain (Loss) Reclassified from OCI to Income |  | Gain (Loss) Recognized in Income on Amounts Excluded from Effectiveness Testing
Interest Rate Contracts |  | $ | — |  |  | Interest expense |  | $ | (1.5) |  |  | $ | — |
Foreign Exchange Contracts |  | $ | (2.6) |  |  | Cost of sales |  | $ | 0.6 |  |  | $ | — |
A summary of the pre-tax effect of cash flow hedge accounting on the Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 30, 2024 and April 1, 2023 is as follows:
|  |  |  | Year-to-Date 2024
(Millions of Dollars) |  |  |  |  |  | Cost of Sales |  | Interest Expense
Total amount in the Consolidated Statements of Operations and Comprehensive Loss in which the effects of the cash flow hedges are recorded |  |  |  |  |  | $ | 2,761.0 |  |  | $ | 131.5 |
Gain (loss) on cash flow hedging relationships: |  |  |  |  |  |  |  |
Foreign Exchange Contracts: |  |  |  |  |  |  |  |
Hedged Items |  |  |  |  |  | $ | (1.7) |  |  | $ | — |
Gain (loss) reclassified from OCI into Income |  |  |  |  |  | $ | 1.7 |  |  | $ | — |
Interest Rate Swap Agreements: |  |  |  |  |  |  |  |
Gain (loss) reclassified from OCI into Income 1 |  |  |  |  |  | $ | — |  |  | $ | (1.5) |
|  |  |  | Year-to-Date 2023
(Millions of Dollars) |  |  |  |  |  | Cost of Sales |  | Interest Expense
Total amount in the Consolidated Statements of Operations and Comprehensive Loss in which the effects of the cash flow hedges are recorded |  |  |  |  |  | $ | 3,096.3 |  |  | $ | 130.9 |
Gain (loss) on cash flow hedging relationships: |  |  |  |  |  |  |  |
Foreign Exchange Contracts: |  |  |  |  |  |  |  |
Hedged Items |  |  |  |  |  | $ | (0.6) |  |  | $ | — |
Gain (loss) reclassified from OCI into Income |  |  |  |  |  | $ | 0.6 |  |  | $ | — |
Interest Rate Swap Agreements: |  |  |  |  |  |  |  |
Gain (loss) reclassified from OCI into Income 1 |  |  |  |  |  | $ | — |  |  | $ | (1.5) |
1 Inclusive of the gain/loss amortization on terminated derivative financial instruments. An after-tax gain of $0.1 million and after-tax loss of $0.5 million were reclassified from Accumulated other comprehensive loss into earnings (inclusive of the gain/loss amortization on terminated derivative instruments) during the periods in which the underlying hedged transactions affected earnings for the three months ended March 30, 2024 and April 1, 2023, respectively. Interest Rate Contracts: In prior years, the Company entered into interest rate swap agreements in order to obtain the lowest cost source of funds within a targeted range of variable to fixed-debt proportions. These swap agreements, which were designated as cash flow hedges, subsequently matured or were terminated and the gain/loss was recorded in Accumulated other comprehensive loss and is being amortized to interest expense. The cash flows stemming from the maturity or termination of the swaps are presented within financing activities in the Condensed Consolidated Statements of Cash Flows. As of March 30, 2024 and December 30, 2023, the Company did not have any outstanding forward starting swaps designated as cash flow hedges. Forward Contracts: Through its global businesses, the Company enters into transactions and makes investments denominated in multiple currencies that give rise to foreign currency risk. The Company and its subsidiaries regularly purchase inventory from subsidiaries with functional currencies different than their own, which creates currency-related volatility in the Company’s results of operations. The Company utilizes forward contracts to hedge these forecasted purchases and sales of inventory. Gains and losses reclassified from Accumulated other comprehensive loss are recorded in Cost of sales as the hedged item affects earnings. There are no components excluded from the assessment of effectiveness for these contracts. At March 30, 2024 and December 30, 2023, the notional value of forward currency contracts outstanding is $208.3 million and $300.0 million, respectively, maturing on various dates through 2024. FAIR VALUE HEDGES Interest Rate Risk: In an effort to optimize the mix of fixed versus floating rate debt in the Company’s capital structure, the Company enters into interest rate swaps. In prior years, the Company entered into interest rate swaps related to certain of its notes payable which were subsequently terminated. Amortization of the gain/loss on previously terminated swaps is reported in interest expense. Prior to termination, the changes in the fair value of the swaps and the offsetting changes in fair value related to the underlying notes were recognized in earnings. As of March 30, 2024 and December 30, 2023, the Company did not have any active fair value interest rate swaps. A summary of the pre-tax effect of fair value hedge accounting on the Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 30, 2024 and April 1, 2023 is as follows:
(Millions of Dollars) |  |  | Year-to-Date 2024 Interest Expense |
Total amount in the Consolidated Statements of Operations and Comprehensive Loss in which the effects of the fair value hedges are recorded |  |  | $ | 131.5 |  |
Amortization of gain on terminated swaps |  |  | $ | (0.1) |  |
(Millions of Dollars) |  |  | Year-to-Date 2023 Interest Expense
Total amount in the Consolidated Statements of Operations and Comprehensive Loss in which the effects of the fair value hedges are recorded |  |  | $ | 130.9 |
Amortization of gain on terminated swaps |  |  | $ | (0.1) |
A summary of the amounts recorded in the Condensed Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges as of March 30, 2024 and December 30, 2023 is as follows:
|  | March 30, 2024
(Millions of Dollars) |  | Carrying Amount of Hedged Liability (1) |  | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability
Current Maturities of Long-Term Debt |  | $ | 500.0 |  |  | Terminated Swaps |  | $ | — |
Long-Term Debt |  | $ | 532.5 |  |  | Terminated Swaps |  | $ | (19.6) |
|  | December 30, 2023
(Millions of Dollars) |  | Carrying Amount of Hedged Liability (1) |  | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability
Current Maturities of Long-Term Debt |  | $ | 1.1 |  |  | Terminated Swaps |  | $ | — |
Long-Term Debt |  | $ | 532.6 |  |  | Terminated Swaps |  | $ | (19.7) |
(1) Represents hedged items no longer designated in qualifying fair value hedging relationships. NET INVESTMENT HEDGES The Company utilizes net investment hedges to offset the translation adjustment arising from re-measurement of its investment in the assets and liabilities of its foreign subsidiaries. The total after-tax amounts in Accumulated other comprehensive loss were gains of $71.4 million and $64.9 million at March 30, 2024 and December 30, 2023, respectively. As of March 30, 2024 and December 30, 2023, the Company did not have any net investment hedges with a notional value outstanding. As of March 30, 2024, the Company had Euro denominated commercial paper with a value of $357.1 million, maturing in 2024, hedging a portion of the Company's Euro denominated net investments. As of December 30, 2023, the Company had Euro denominated commercial paper with a value of $399.7 million, maturing in 2024, hedging a portion of the Company's Euro denominated net investments. Maturing foreign exchange contracts resulted in no cash received or paid for the three months ended March 30, 2024 and April 1, 2023. Gains and losses on net investment hedges remain in Accumulated other comprehensive loss until disposal of the underlying assets. Gains and losses representing components excluded from the assessment of effectiveness are recognized in earnings in Other, net on a straight-line basis over the term of the hedge. Gains and losses after a hedge has been de-designated are recorded directly to the Consolidated Statements of Operations and Comprehensive Loss in Other, net. The pre-tax gain or loss from fair value changes for the three months ended March 30, 2024 and April 1, 2023 is as follows:
|  | Year-to-Date 2024
(Millions of Dollars) |  | Total Gain (Loss) Recorded in OCI |  | Excluded Component Recorded in OCI |  | Income Statement Classification |  | Total Gain (Loss) Reclassified from OCI to Income |  | Excluded Component Amortized from OCI to Income
Forward Contracts |  | $ | (0.2) |  |  | $ | — |  |  | Other, net |  | $ | — |  |  | $ | — |
Non-derivative designated as Net Investment Hedge |  | $ | 8.8 |  |  | $ | — |  |  | Other, net |  | $ | — |  |  | $ | — |
|  | Year-to-Date 2023
(Millions of Dollars) |  | Total Gain (Loss) Recorded in OCI |  | Excluded Component Recorded in OCI |  | Income Statement Classification |  | Total Gain (Loss) Reclassified from OCI to Income |  | Excluded Component Amortized from OCI to Income
Forward Contracts |  | $ | 0.2 |  |  | $ | — |  |  | Other, net |  | $ | — |  |  | $ | — |
Cross Currency Swap |  | $ | (0.1) |  |  | $ | — |  |  | Other, net |  | $ | — |  |  | $ | — |
Non-derivative designated as Net Investment Hedge |  | $ | (12.6) |  |  | $ | — |  |  | Other, net |  | $ | — |  |  | $ | — |
UNDESIGNATED HEDGES Foreign Exchange Contracts: Foreign exchange forward contracts are used to reduce risks arising from the change in fair value of certain foreign currency denominated assets and liabilities (such as affiliate loans, payables and receivables). The objective is to minimize the impact of foreign currency fluctuations on operating results. The total notional amount of the forward contracts outstanding is $1.0 billion as of March 30, 2024 and December 30, 2023, maturing on various dates through 2024. The loss recorded in the Consolidated Statements of Operations and Comprehensive Loss from changes in the fair value related to derivatives not designated as hedging instruments under ASC 815 for the three months ended March 30, 2024 and April 1, 2023 is as follows:
(Millions of Dollars) | Income Statement Classification |  |  |  | Year-to-Date 2024 |  |  |  | Year-to-Date 2023
Foreign Exchange Contracts | Other, net |  |  |  | $ | (13.9) |  |  |  |  | $ | (1.0) |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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