Quarterly report pursuant to Section 13 or 15(d)

Financial Instruments

v3.20.2
Financial Instruments
6 Months Ended
Jun. 27, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Financial Instruments Financial Instruments

The Company operates globally with manufacturing and sales facilities around the world. Due to the Company’s global operations, the Company engages in activities involving both financial and market risks. The Company uses normal operating and financing activities, along with derivative financial instruments, to minimize these risks. See Note 14 in the Notes to Consolidated Financial Statements in the 2019 Form 10-K for further details regarding the Company's financial instruments and hedging policies.

Commodity Price. The Company uses commodity swaps to hedge anticipated purchases of aluminum. As of June 27, 2020, the notional value of commodity swap contracts outstanding was $1.0 million, with the contracts maturing through 2021. The Company had no outstanding commodity swap contracts at December 31, 2019 and June 29, 2019. The amount of gain or loss associated with the change in fair value of these instruments is deferred in Accumulated other comprehensive loss and recognized in Cost of sales in the same period or periods during which the hedged transaction affects earnings. As of June 27, 2020, the Company estimates that during the next 12 months it will reclassify approximately $0.1 million in net losses (based on current prices) from Accumulated other comprehensive loss to Cost of sales.

Foreign Currency Derivatives. Forward exchange contracts outstanding at June 27, 2020, December 31, 2019 and June 29, 2019 had notional contract values of $270.6 million, $332.5 million and $395.6 million, respectively. The notional contract values of option contracts outstanding totaled $17.8 million at June 27, 2020, December 31, 2019 and June 29, 2019, respectively. The forward contracts outstanding at June 27, 2020 mature through 2021 and mainly relate to the Euro, Canadian dollar, Australian dollar and Japanese yen. As of June 27, 2020, the Company estimates that during the next 12 months, it will reclassify approximately $2.5 million of net gains (based on current rates) from Accumulated other comprehensive loss to Cost of sales.

Interest Rate Derivatives. The Company previously entered into fixed-to-floating interest rate swaps to convert a portion of its long-term debt from fixed to floating rate debt. In the second half of 2019, the Company settled its fixed-to-floating interest rate swaps, resulting in a net deferred gain of $2.5 million included within Debt. The Company will reclassify $0.7 million of net deferred gains from Debt to Interest expense during the next 12 months. As a result of the settlement, there are no outstanding interest rate swaps as of June 27, 2020 or December 31, 2019. As of June 29, 2019, the outstanding swaps had a total notional contract value of $200.0 million. These instruments have been designated as fair value hedges, with the fair value recorded in long-term debt.

As of June 27, 2020, December 31, 2019 and June 29, 2019, the Company had $1.7 million, $2.0 million and $2.2 million, respectively, of net deferred losses associated with all settled forward-starting interest rate swaps, which were designated as cash flow hedges with gains and losses included in Accumulated other comprehensive loss. As of June 27, 2020, the Company estimates that during the next 12 months, it will reclassify approximately $0.6 million of net losses resulting from settled forward-starting interest rate swaps from Accumulated other comprehensive loss to Interest expense.

As of June 27, 2020, December 31, 2019 and June 29, 2019, the fair values of the Company’s derivative instruments were:
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative Assets
 
Derivative Liabilities
Instrument
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
 
 
 
 
June 27, 2020
 
Dec 31, 2019
 
June 29, 2019
 
 
 
June 27, 2020
 
Dec 31, 2019
 
June 29,
2019
Derivatives Designated as Cash Flow Hedges
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
Prepaid expenses and other
 
$
2.8

 
$
4.1

 
$
4.6

 
Accrued expenses
 
$
1.8

 
$
2.3

 
$
1.8

Commodity contracts
 
Prepaid expenses and other
 

 

 

 
Accrued expenses
 
0.1

 

 

Total
 
 
 
$
2.8

 
$
4.1

 
$
4.6

 
 
 
$
1.9

 
$
2.3

 
$
1.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives Designated as Fair Value Hedges
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
Other long-term assets
 
$

 
$

 
$
2.2

 
Other long-term liabilities
 
$

 
$

 
$

Total
 
 
 
$

 
$

 
$
2.2

 
 
 
$

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Hedging Activity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
Prepaid expenses and other
 
$
0.7

 
$
0.1

 
$
0.5

 
Accrued expenses
 
$
0.6

 
$
0.9

 
$
0.4


The effect of derivative instruments on the Condensed Consolidated Statements of Comprehensive Income for the three months and six months ended June 27, 2020 and June 29, 2019 was: 
(in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives Designated as Cash Flow Hedging Instruments
 
Amount of Gain (Loss) on Derivatives Recognized in Accumulated Other Comprehensive Loss
 
Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings
 
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings
 
 
Three Months Ended
 
Six Months Ended
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 27,
2020
 
June 29,
2019
 
June 27,
2020
 
June 29,
2019
 
 
 
June 27,
2020
 
June 29,
2019
 
June 27,
2020
 
June 29,
2019
Interest rate contracts
 
$

 
$

 
$

 
$

 
Interest expense
 
$
(0.2
)
 
$
(0.2
)
 
$
(0.3
)
 
$
(0.3
)
Foreign exchange contracts
 
(2.9
)
 
(0.3
)
 
6.6

 
1.0

 
Cost of sales
 
4.0

 
2.9

 
6.7

 
5.4

Commodity contracts
 
0.0

 

 
(0.1
)
 

 
Cost of sales
 
0.0

 

 
0.0

 

Total
 
$
(2.9
)
 
$
(0.3
)
 
$
6.5

 
$
1.0

 
 
 
$
3.8

 
$
2.7

 
$
6.4

 
$
5.1


Derivatives Designated as Fair Value Hedging Instruments
 
Location of Gain (Loss) on Derivatives
Recognized in Earnings
 
Amount of Gain (Loss) on Derivatives Recognized in Earnings
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
 
 
June 27,
2020
 
June 29,
2019
 
June 27,
2020
 
June 29,
2019
Interest rate contracts
 
Interest expense
 
$
0.1

 
$
(0.1
)
 
$
0.3

 
$
(0.2
)

Other Hedging Activity
 
Location of Gain (Loss) on Derivatives
Recognized in Earnings
 
Amount of Gain (Loss) on Derivatives Recognized in Earnings
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
 
 
June 27,
2020
 
June 29,
2019
 
June 27, 2020
 
June 29, 2019
Foreign exchange contracts
 
Cost of sales
 
$
(1.4
)
 
$
(0.8
)
 
$
3.4

 
$
0.7

Foreign exchange contracts
 
Other expense, net
 
0.1

 
0.6

 
1.2

 
0.6

Commodity contracts
 
Cost of sales
 
0.0

 

 
0.0

 

Total
 
 
 
$
(1.3
)
 
$
(0.2
)
 
$
4.6

 
$
1.3


    
Fair Value of Other Financial Instruments. The carrying values of the Company’s short-term financial instruments, including cash and cash equivalents and accounts and notes receivable, approximate their fair values because of the short maturity of these instruments. At June 27, 2020, December 31, 2019 and June 29, 2019, the fair value of the Company’s long-term debt, including short-term debt and current maturities, was approximately $1,382.7 million, $1,214.6 million and $1,358.1 million, respectively, and was determined using Level 1 and Level 2 inputs described in Note 7 to the Notes to Consolidated Financial Statements in the 2019 Form 10-K. The carrying value of long-term debt, including short-term debt and current maturities, was $1,307.3 million, $1,131.6 million and $1,301.9 million as of June 27, 2020, December 31, 2019 and June 29, 2019, respectively.