Derivative Financial Instruments

3 Months Ended

Mar. 29, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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

Counterparties expose us to credit loss in the event of non-performance of 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 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 a net liability position above a certain threshold. The aggregate fair value of all derivative instruments with a credit-risk-related contingent feature that were in a liability position on March 29, 2024 was $0.1 million. As of March 29, 2024, no triggering event has occurred and thus we are not required to post collateral.

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.

Cash flows from derivative instruments that are designated as cash flow hedges are classified in the same category as the cash flows from the underlying hedged items. In the event that hedge accounting is discontinued, cash flows related to changes in fair value subsequent to the date of discontinuance are classified within investing activities.

Foreign Currency Hedges

Our results of operations and financial condition are exposed to fluctuations in currency exchange rates against the U.S. dollar, and we mitigate that exposure by entering into foreign currency forward contracts or foreign currency collars. A foreign currency collar consists of a written call option and a purchased put option to sell the foreign currency at a range of predetermined exchange rates. A foreign currency collar guarantees that the exchange rate of the currency will not fluctuate beyond the range of the options’ strike prices. Certain of our subsidiaries periodically enter into foreign currency forward contracts or foreign currency collars in order to hedge portions of forecasted sales or cost of sales denominated in foreign currencies, which generally mature within one year. At March 29, 2024, our foreign currency forward and collar contracts hedge a portion of our 2024 foreign currency exposure.

The foreign currency forward contracts and foreign currency collars qualifying as cash flow hedges were designated as single-purpose cash flow hedges of forecasted cash flows.

We had the following outstanding foreign currency contracts as of March 29, 2024 (in millions):

Foreign currency contracts qualifying as cash flow hedges:

Notional amount

Euro

EUR

50.8

British pound

GBP

4.4

Kenyan shilling

KES

2,098.4

Interest Rate Contracts

Our results of operations and financial condition are exposed to fluctuations in variable interest rates, and we mitigate that exposure by entering into interest rate swaps. During 2018, we entered into interest rate swaps in order to hedge the risk of the fluctuation on future interest payments related to our variable rate LIBOR-based borrowings through 2028. We amended our Second A&R Credit Agreement and our interest rate swaps to transition from LIBOR to SOFR as a reference rate effective January 3, 2023.

Gains or losses on interest rate swaps are recorded in other comprehensive income and are subsequently reclassified into earnings as the interest expense on debt is recognized in earnings. At March 29, 2024, the notional value of interest rate contracts outstanding was $400.0 million, with $200.0 million maturing in June 2024 and the remaining $200.0 million maturing in 2028. Refer to Note 8, “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 March 29, 2024 and December 29, 2023 (U.S. dollars in millions):


	Derivatives designated as hedging instruments (1)
	Foreign exchange contracts				Interest rate swaps			Total
Balance Sheet location:	March 29, 2024		December 29, 2023			March 29, 2024		December 29, 2023		March 29, 2024		December 29, 2023
Asset derivatives:
Prepaid expenses and other current assets	$	1.3	$	0.1		$	0.9	$	2.1	$	2.2	$	2.2
Other noncurrent assets	—		—			9.0		5.8		9.0		5.8
Total asset derivatives	$	1.3	$	0.1		$	9.9	$	7.9	$	11.2	$	8.0

Liability derivatives:
Accounts payable and accrued expenses	$	0.1	$	0.4		$	—	$	—	$	0.1	$	0.4

Total liability derivatives	$	0.1	$	0.4		$	—	$	—	$	0.1	$	0.4

(1) See Note 14, “Fair Value Measurements,” for fair value disclosures.

We expect that $5.2 million of the net fair value of our cash flow hedges recognized as a net gain in accumulated other comprehensive loss will be transferred to earnings during the next 12 months, and the remaining net gain of $4.9 million over the following 5 years, along with the earnings effect of the related forecasted transactions.

The following table reflects the effect of derivative instruments on the Consolidated Statements of Comprehensive Income for the quarters ended March 29, 2024 and March 31, 2023 (U.S. dollars in millions):


		Net amount of gain (loss) recognized in other comprehensive income on derivatives
	Quarter ended
Derivative instruments		March 29, 2024		March 31, 2023
Foreign exchange contracts		$	3.7	$	4.9

Interest rate swaps, net of tax		2.1		(4.9)
Total		$	5.8	$	—

Refer to Note 15, “Accumulated Other Comprehensive Loss,” for the effect of derivative instruments on the Consolidated Statements of Operations related to amounts reclassified from accumulated other comprehensive loss for the quarters ended March 29, 2024 and March 31, 2023.