Financial Instruments

9 Months Ended

Sep. 29, 2024

Investments, Debt and Equity Securities [Abstract]

We do not enter into financial instruments for trading or speculative purposes. We principally use financial instruments to reduce the impact of changes in foreign currency exchange rates. The principal derivative financial instruments we enter into on a routine basis are foreign exchange contracts. Derivative financial instruments are recorded at fair value. The counterparties to derivative contracts are major financial institutions. We are subject to credit risk on these contracts equal to the fair value of these instruments. Management currently believes that the risk of incurring material losses is unlikely and that the losses, if any, would be immaterial to the Company.

We account for derivative instruments as follows:

•Derivative instruments that are designated as cash flow hedges - The changes in the fair value of the derivative instrument are reported in other comprehensive income and are recognized in the condensed consolidated statements of income when the hedged item affects earnings. In all periods presented, the recognized gain or loss on the derivative instrument, as well as the offsetting gain or loss on the hedged item, are recognized in cost of products sold on the condensed consolidated statements of income.

•Derivative instruments that are designated as fair value hedges - The gain or loss on the derivative instrument, as well as the offsetting gain or loss on the hedged item, are recognized in other income, net on the condensed consolidated statements of income.

•Derivative instruments that are designated as net investment hedges - The changes in fair value of the derivative instrument are recognized in the condensed consolidated statements of income when realized upon sale or upon complete or substantially complete liquidation of the investment in the foreign entity.

As of and for the thirteen and thirty-nine weeks ended September 29, 2024 and September 24, 2023, we have only entered into foreign currency forward contracts, some of which have been designated as fair value hedges and some of which have been designated as cash flow hedges. We may enter into foreign currency forward contracts to protect against foreign exchange risks associated with certain existing assets and liabilities, forecasted future cash flows, and net investments in foreign subsidiaries. Foreign exchange contracts related to forecasted future cash flows correspond to the periods of the forecasted transactions, which generally do not exceed 12 to 15 months subsequent to the latest balance sheet date.

Our primary foreign currency hedge contracts pertain to the Mexican peso and the Canadian dollar. The gross U.S. dollar equivalent notional amount of all foreign currency derivative hedges outstanding at September 29, 2024, was $91.3 million, representing a net settlement liability of $5.8 million. Based on foreign exchange rates as of September 29, 2024, we estimate that the $5.1 million of net derivative losses associated with cash flow hedges and included in accumulated other comprehensive income as of September 29, 2024, will be reclassified to earnings within the next twelve months.

The fair values of foreign exchange derivative instruments on the condensed consolidated balance sheets as of September 29, 2024 and December 31, 2023 were:


(U.S. Dollars presented in millions)	Location	September 29, 2024		December 31, 2023
Assets:
Foreign exchange contracts	Other current assets	$	—	$	3.0
	Total assets	$	—	$	3.0
Liabilities:
Foreign exchange contracts	Other current liabilities	$	5.8	$	0.1
	Total liabilities	$	5.8	$	0.1

The effects of cash flow hedging financial instruments included within the condensed consolidated statements of comprehensive income for the thirteen and thirty-nine weeks ended September 29, 2024 and September 24, 2023 are presented in the table below. When the hedged item affects earnings, amounts are reclassed out of accumulated other comprehensive loss and recognized as a component of cost of products sold.


	Amount Recognized in Statement of Comprehensive Income for Cash Flow Hedging Relationships
	13 Weeks Ended				39 Weeks Ended
(U.S. Dollars presented in millions)	September 29, 2024		September 24, 2023		September 29, 2024		September 24, 2023
Foreign exchange contracts:
Unrealized holding (losses) gains arising during period	$	(4.1)	$	1.6	$	(8.0)	$	8.1
Less: reclassification adjustment for gains included in net income	2.0		(3.1)		0.7		(8.6)
Unrealized losses on derivatives	$	(2.1)	$	(1.5)	$	(7.3)	$	(0.5)

The effects of fair value hedging financial instruments included in other income, net on the condensed consolidated statements of income for the thirteen and thirty-nine weeks ended September 29, 2024 and September 24, 2023 were:


	Amount of (Gain) Loss Recognized in Earnings on Fair Value Hedging Relationships
	13 Weeks Ended				39 Weeks Ended
(U.S. Dollars presented in millions)	September 29, 2024		September 24, 2023		September 29, 2024		September 24, 2023
Foreign exchange contracts:
Hedged items	$	0.1	$	1.3	$	—	$	(0.7)
Derivatives designated as hedging instruments	(0.1)		—		—		3.4
Net losses recognized in earnings	$	—	$	1.3	$	—	$	2.7