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Financial Instruments and Derivatives | 9 Months Ended
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Oct. 02, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Financial Instruments and Derivatives | Financial Instruments and Derivatives 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.
|  | October 2, 2022 |  | December 31, 2021
|  | Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
Long-term debt, net of current portion |  | $ | 2,723,101 |  |  | $ | 2,444,965 |  |  | $ | 1,199,106 |  |  | $ | 1,434,711 |
The carrying value of cash and cash equivalents and short-term 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 which is considered a Level 2 fair value measurement. Cash Flow Hedges At October 2, 2022 and December 31, 2021, 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 2024, 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 Certain derivative contracts entered into to manage the cost of anticipated purchases of natural gas and aluminum have been designated by the Company as cash flow hedges. At October 2, 2022, these contracts included natural gas swaps covering approximately 600,000 MMBTUs. These contracts represented approximately 24% of anticipated usage in North America for the remainder of 2022 and 1% of anticipated usage in both 2023 and 2024. The Company also has certain natural gas hedges that it does not treat as cash flow hedges. See “Non-Designated Derivatives” below for a discussion of these hedges. The fair value of the Company’s commodity cash flow hedges netted to a gain position of $1,892 and $1,491 at October 2, 2022 and December 31, 2021, respectively. The amount of the gain included in Accumulated Other Comprehensive Income at October 2, 2022 expected to be reclassified to the income statement during the next twelve months is $1,881. 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 2022 and 2023. The net positions of these contracts at October 2, 2022 were as follows (in thousands):
Currency | Action | Quantity
Colombian peso | purchase | 7,354,331 |
Mexican peso | purchase | 123,095 |
Polish zloty | purchase | 22,382 |
Czech koruna | purchase | 16,675 |
Euro | purchase | 9,989 |
Turkish lira | purchase | 5,086 |
Canadian dollar | purchase | 3,798 |
British pound | purchase | 819 |
The fair value of foreign currency cash flow hedges related to forecasted sales and purchases netted to a loss position of $(36) and a gain position of $336 at October 2, 2022 and December 31, 2021, respectively. Losses of $(36) are expected to be reclassified from accumulated other comprehensive loss to the income statement during the next twelve months. In addition, the Company has entered into forward contracts to hedge certain foreign currency cash flow transactions related to construction in progress. As of October 2, 2022 and December 31, 2021, the net position of these contracts was $(1,476) and $(457), respectively. During the nine-month period ended October 2, 2022, losses from these hedges totaling $864 were reclassified from accumulated other comprehensive loss and included in the carrying value of the capitalized expenditures. Losses of $1,476 are expected to be reclassified from accumulated other comprehensive loss and included in the carrying value of the related fixed assets acquired during the next twelve months. Non-Designated Derivatives The Company routinely enters into other derivative contracts which are not designated for hedge accounting treatment under ASC 815. As such, changes in fair value of these non-designated derivatives are recorded directly to income and expense in the periods that they occur. Foreign Currency Hedges 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 net currency positions of these non-designated contracts at October 2, 2022, were as follows (in thousands):
Currency | Action | Quantity
Colombian peso | purchase | 24,748,486 |
Indonesian rupiah | purchase | 8,083,663 |
Mexican peso | purchase | 419,703 |
Turkish lira | purchase | 44,125 |
Canadian dollar | purchase | 9,568 |
Thai baht | sell | (11,143) |
Commodity Hedges The Company has entered into non-designated derivative contracts to manage the cost of anticipated purchases of natural gas. At October 2, 2022, these contracts consisted of natural gas swaps covering approximately 8.2 million MMBTUs and represented approximately 47% of anticipated usage in North America for the remainder of 2022 and 69% and 17% of anticipated usage in 2023 and 2024, respectively. Interest Rate Hedges Pursuant to the registered public offering of unsecured 2.850% notes with a principal amount of $500,000 maturing on February 1, 2032, the Company entered into treasury lock derivative instruments with two banks, with a notional principal amount of $150,000 each on December 29, 2021. These instruments had the risk management objective of reducing exposure to the Company of increases in the underlying Treasury index up to the date of pricing of the notes. The fair value of the contracts was a net loss position of $(550) at December 31, 2021. The derivatives were settled when the bonds priced on January 11, 2022, with the Compan y recognizing a gain on the settlement of $5,201. The gain is included in “Selling, general and administrative expenses” on the Company's Condensed Consolidated Statements of Income for the nine-month period ended October 2, 2022. The fair value of the Company’s non-designated derivatives position was a gain of $2,369 and $92 at October 2, 2022 and December 31, 2021, respectively. The following table sets forth the location and fair values of the Company’s derivative instruments at October 2, 2022 and December 31, 2021:
Description |  | Balance Sheet Location |  | October 2, 2022 |  | December 31, 2021
Derivatives designated as hedging instruments: |  |  |  |  |  |
Commodity Contracts |  | Prepaid expenses |  | $ | 1,905 |  |  | $ | 1,599 |
Commodity Contracts |  | Other assets |  | $ | 23 |  |  | $ | — |
Commodity Contracts |  | Accrued expenses and other |  | $ | (25) |  |  | $ | (108) |
Commodity Contracts |  | Other liabilities |  | $ | (11) |  |  | $ | — |
Foreign Exchange Contracts |  | Prepaid expenses |  | $ | 3,098 |  |  | $ | 848 |
Foreign Exchange Contracts |  | Accrued expenses and other |  | $ | (4,610) |  |  | $ | (969) |
Derivatives not designated as hedging instruments: |  |  |  |
Commodity Contracts |  | Prepaid expenses |  | $ | 5,069 |  |  | $ | 1,815 |
Commodity Contracts |  | Other assets |  | $ | 689 |  |  | $ | — |
Commodity Contracts |  | Accrued expenses and other |  | $ | (2,497) |  |  | $ | (1,132) |
Commodity Contracts |  | Other liabilities |  | $ | (812) |  |  | $ | — |
Foreign Exchange Contracts |  | Prepaid expenses |  | $ | 237 |  |  | $ | 135 |
Foreign Exchange Contracts |  | Accrued expenses and other |  | $ | (317) |  |  | $ | (176) |
Interest Rate Lock Contract |  | Accrued expenses and other |  | $ | — |  |  | $ | (550) |
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-month periods ended October 2, 2022 and October 3, 2021, excluding the amount of foreign currency cash flow hedges that were reclassified from accumulated other comprehensive loss to the carrying value of the capitalized expenditures:
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-month period ended October 2, 2022 |  |  |  |  |  |  |  |
Foreign Exchange Contracts |  | $ | (290) |  |  | Net sales |  | $ | 559 |  |  |  |  |
|  |  |  | Cost of sales |  | $ | (433) |  |  |  |  |
Commodity Contracts |  | $ | 1,626 |  |  | Cost of sales |  | $ | 2,434 |  |  |  |  |
Three-month period ended October 3, 2021 |  |  |  |  |  |  |  |
Foreign Exchange Contracts |  | $ | (407) |  |  | Net sales |  | $ | 937 |  |  |  |  |
|  |  |  | Cost of sales |  | $ | (711) |  |  |  |  |
Commodity Contracts |  | $ | 4,200 |  |  | Cost of sales |  | $ | 2,051 |  |  |  |  |
Description |  | Gain or (Loss) Recognized |  | Location of Gain or (Loss) Recognized in Income Statement
Derivatives not Designated as Hedging Instruments: |  |  |  |
Three-month period ended October 2, 2022 |  |
Commodity Contracts |  | $ | 2,574 |  |  | Cost of sales
Foreign Exchange Contracts |  | $ | (484) |  |  | Selling, general and administrative
Three-month period ended October 3, 2021 |  |
Commodity Contracts |  | $ | 2,861 |  |  | Cost of sales
Foreign Exchange Contracts |  | $ | (675) |  |  | Selling, general and administrative
| Three-month period ended October 2, 2022 |  | Three-month period ended October 3, 2021
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 | $ | 559 |  | $ | 2,001 |  |  | $ | 937 |  | $ | 1,340 |
Gain or (loss) on cash flow hedging relationships: |  |  |  |
Foreign exchange contracts: |  |  |  |  |
Amount of gain or (loss) reclassified from accumulated other comprehensive loss into net income | $ | 559 |  | $ | (433) |  |  | $ | 937 |  | $ | (711) |
Commodity contracts: |  |  |  |  |
Amount of gain reclassified from accumulated other comprehensive loss into net income | $ | — |  | $ | 2,434 |  |  | $ | — |  | $ | 2,051 |
The following tables set forth the effect of the Company’s derivative instruments on financial performance for the nine months ended October 2, 2022 and October 3, 2021, excluding the amount of foreign currency cash flow hedges that were reclassified from accumulated other comprehensive loss to the carrying value of the capitalized expenditures:
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: |  |  |  |  |  |
Nine-month period ended October 2, 2022 |  |  |  |  |  |  |  |
Foreign Exchange Contracts |  | $ | (202) |  |  | Net sales |  | $ | 2,425 |  |  |  |  |
|  |  |  | Cost of sales |  | $ | (2,139) |  |  |  |  |
Commodity Contracts |  | $ | 5,809 |  |  | Cost of sales |  | $ | 5,371 |  |  |  |  |
Nine-month period ended October 3, 2021 |  |  |  |  |  |  |  |
Foreign Exchange Contracts |  | $ | 156 |  |  | Net sales |  | $ | 2,766 |  |  |  |  |
|  |  |  | Cost of sales |  | $ | (2,129) |  |  |  |  |
Commodity Contracts |  | $ | 10,801 |  |  | Cost of sales |  | $ | 2,626 |  |  |  |  |
Description |  | Gain or (Loss) Recognized |  | Location of Gain or (Loss) Recognized in Income Statement
Derivatives not Designated as Hedging Instruments: |  |  |  |
Nine-month period ended October 2, 2022 |  |  |  |
Commodity Contracts |  | $ | 10,072 |  |  | Cost of sales
Foreign Exchange Contracts |  | $ | (283) |  |  | Selling, general and administrative
Nine-month period ended October 3, 2021 |  |  |  |
Commodity Contracts |  | $ | 3,295 |  |  | Cost of sales
Foreign Exchange Contracts |  | $ | (906) |  |  | Selling, general and administrative
| Nine-month period ended October 2, 2022 |  | Nine-month period ended October 3, 2021
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 | $ | 2,425 |  | $ | 3,232 |  |  | $ | 2,766 |  | $ | 497 |
Gain or (loss) on cash flow hedging relationships: |  |  |  |
Foreign exchange contracts: |  |  |  |  |
Amount of gain/(loss) reclassified from accumulated other comprehensive income into net income | $ | 2,425 |  | $ | (2,139) |  |  | $ | 2,766 |  | $ | (2,129) |
Commodity contracts: |  |  |  |  |
Amount of gain reclassified from accumulated other comprehensive income into net income | $ | — |  | $ | 5,371 |  |  | $ | — |  | $ | 2,626 |

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI https://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
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