Financial Instruments

3 Months Ended

Mar. 31, 2022

In the normal course of business, the Company is exposed to certain risks arising from business operations and economic factors. These fluctuations can increase the cost of financing, investing and operating the business. The Company uses various financial instruments, including derivative instruments, to manage the risks associated with interest rate, commodity price and foreign currency exposures. These financial instruments are not used for trading or speculative purposes. The Company recognizes all derivatives in the Condensed Consolidated Balance Sheets at their fair value as either assets or liabilities.

On the date a derivative contract is entered into, the Company designates the derivative instrument as a cash flow hedge of a forecasted transaction or as an undesignated derivative. The Company formally documents its hedge relationships, including identification of the derivative instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. This process includes linking derivative instruments that are designated as hedges to specific assets, liabilities or forecasted transactions.

The Company assesses at inception and at least quarterly thereafter, whether the derivatives used in cash flow hedging transactions are highly effective in offsetting the changes in the cash flows of the hedged item. To the extent the derivative is deemed to be a highly effective hedge, the fair market value changes of the instrument are recorded to Accumulated other comprehensive income (loss) (AOCI). If the hedging relationship ceases to be highly effective, or it becomes probable that a forecasted transaction is no longer expected to occur, the hedging relationship will be undesignated and any future gains and losses on the derivative instrument will be recorded in Net earnings.

The fair values of derivative instruments included within the Condensed Consolidated Balance Sheets were as follows:


	Derivative assets				Derivative liabilities
In millions	March 31, 2022		December 31, 2021		March 31, 2022		December 31, 2021
Derivatives designated as hedges:
Currency derivatives	$	—	$	0.1	$	3.9	$	2.7
Commodity derivatives	17.6		4.9		—		0.2

Derivatives not designated as hedges:
Currency derivatives	16.3		10.5		22.1		14.0

Total derivatives	$	33.9	$	15.5	$	26.0	$	16.9

Asset and liability derivatives included in the table above are recorded within Other current assets and Accrued expenses and other current liabilities, respectively.

Currency Derivative Instruments

The notional amount of the Company’s currency derivatives was $0.6 billion and $0.5 billion at March 31, 2022 and December 31, 2021, respectively. At March 31, 2022 and December 31, 2021, a net loss of $3.6 million and $2.2 million, net of tax, respectively, was included in AOCI related to the fair value of the Company’s currency derivatives designated as accounting hedges. The amount expected to be reclassified into Net earnings over the next twelve months is a net loss of $3.6 million. The actual amounts that will be reclassified to Net earnings may vary from this amount as a result of changes in market conditions. Gains and losses associated with the Company’s currency derivatives not designated as hedges are recorded in Net earnings as changes in fair value occur. At March 31, 2022, the maximum term of the Company’s currency derivatives was approximately 12 months.

Commodity Derivative Instruments

At March 31, 2022 and December 31, 2021, a net gain of $10.6 million and $3.5 million, net of tax, respectively, was included in AOCI related to the fair market value of the Company's commodity derivatives designated as accounting hedges. A change in fair value of commodity derivative instruments deemed highly effective is included in AOCI and is reclassified to Cost of Goods Sold in the period the sale of the finished goods inventory containing the commodity impacts Net earnings. The amount expected to be reclassified into Net earnings over the next twelve months is a net gain of $10.6 million. The actual amounts that will be reclassified to Net earnings may vary from this amount as a result of changes in market conditions. At March 31, 2022, the Company has commodity contracts to hedge certain forecasted purchases over the next 12 months.

The Company had the following outstanding contracts to hedge forecasted commodity purchases:


	Volume outstanding as of
Commodity	March 31, 2022	December 31, 2021
Aluminum	21,303 metric tons	16,488 metric tons
Copper	6,824,000 pounds	4,035,000 pounds

Other Derivative Instruments

Prior to 2015, the Company utilized forward-starting interest rate swaps and interest rate locks to manage interest rate exposure in periods prior to the anticipated issuance of certain fixed-rate debt. These instruments were designated as cash flow hedges and had a notional amount of $1.3 billion. Consequently, when the contracts were settled upon the issuance of the underlying debt, any realized gains or losses in the fair values of the instruments were deferred into AOCI. These deferred gains or losses are subsequently recognized in Interest expense over the term of the related notes. The net unrecognized gain in AOCI was $4.5 million at March 31, 2022 and $4.7 million at December 31, 2021. The net deferred gain at March 31, 2022 will continue to be amortized over the term of notes with maturities ranging from 2023 to 2044. The amount expected to be amortized over the next twelve months is a net gain of $0.7 million. The Company has no forward-starting interest rate swaps or interest rate lock contracts outstanding at March 31, 2022 or December 31, 2021.

The following table represents the amounts associated with derivatives designated as hedges affecting Net earnings and AOCI for the three months ended March 31:


	Amount of gain (loss) recognized in AOCI				Location of gain (loss) reclassified from AOCI and recognized into Net earnings	Amount of gain (loss) reclassified from AOCI and recognized into Net earnings
In millions	2022		2021			2022		2021
Currency derivatives designated as hedges (1)	$	(3.0)	$	(4.6)	Cost of goods sold	$	(1.1)	$	(1.1)
Commodity derivatives designated as hedges	15.5		—		Cost of goods sold	1.5		—
Interest rate swaps & locks	—		—		Interest expense	0.2		0.2
Total	$	12.5	$	(4.6)		$	0.6	$	(0.9)

(1) Amounts excluded from effectiveness testing and recognized into Cost of goods sold based on changes in fair value and amortization was a loss of $0.8 million for the three months ended March 31, 2021.

The following table represents the amounts associated with derivatives not designated as hedges affecting Net earnings for the three months ended March 31:


		Location of gain (loss) recognized in Net earnings	Amount of gain (loss) recognized in Net earnings
In millions	2022				2021
Currency derivatives		Other income (expense), net	$	(7.4)		$	(2.5)


Total			$	(7.4)		$	(2.5)

The gains and losses associated with the Company’s undesignated currency derivatives are materially offset in Net earnings by changes in the fair value of the underlying transactions.

Concentration of Credit Risk

The counterparties to the Company’s forward contracts consist of a number of investment grade major international financial institutions. The Company could be exposed to losses in the event of nonperformance by the counterparties. However, the credit ratings and the concentration of risk in these financial institutions are monitored on a continuous basis and present no significant credit risk to the Company.