Derivative Financial Instruments

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives recorded on the Condensed Consolidated Balance Sheets:

The following table is a summary of the fair value of derivatives outstanding at September 30, 2023 and December 31, 2022:


	Fair Value
	September 30, 2023				December 31, 2022
	Assets(a)		Accrued Liabilities		Assets(a)		Accrued Liabilities
Derivatives Designated as Cash Flow Hedges

Interest Rate Swaps	$	44	$	—	$	30	$	—
Natural Gas Hedges	$	—	$	1	$	1	$	2
Total Hedges	$	44	$	1	$	31	$	2
Derivatives Not Designated as Cash Flow Hedges
Currency Contracts	$	—	$	2	$	1	$	—
Total Derivatives	$	44	$	3	$	32	$	2

(a) At September 30, 2023 and December 31, 2022, current assets of $44 million and $32 million, respectively, are recorded in prepaid and other current assets on the Condensed Consolidated Balance Sheets.

Derivatives' Impact on the Condensed Consolidated Statement of Operations:

The following table summarizes the impact of the Company's derivatives on the unaudited Condensed Consolidated Statement of Operations:


	Amount of Pre-Tax Gain (Loss) Recognized in Earnings						Amount of Pre-Tax Gain (Loss) Recognized in Earnings
	Revenue		Cost of Goods Sold		Other Income, net		Revenue		Cost of Goods Sold		Other Income, net
	Three Months Ended September 30, 2023						Three Months Ended September 30, 2022

Derivatives Not Designated as Hedging Instruments
Currency Contracts	$	—	$	—	$	2	$	—	$	—	$	(13)
Derivatives Designated as Hedging Instruments
Currency Contracts	$	—	$	—	$	—	$	—	$	—	$	—
Natural Gas Hedges	$	—	$	(1)	$	—	$	—	$	2	$	—
Total Derivatives	$	—	$	(1)	$	2	$	—	$	2	$	(13)


	Amount of Pre-Tax Gain (Loss) Recognized in Earnings						Amount of Pre-Tax Gain (Loss) Recognized in Earnings
	Revenue		Cost of Goods Sold		Other Income, net		Revenue		Cost of Goods Sold		Other Income, net
	Nine Months Ended September 30, 2023						Nine Months Ended September 30, 2022

Derivatives Not Designated as Hedging Instruments
Currency Contracts	$	—	$	—	$	(2)	$	—	$	—	$	(18)
Derivatives Designated as Hedging Instruments
Currency Contracts	$	—	$	(4)	$	—	$	5	$	14	$	—
Natural Gas Hedges	$	—	$	(4)	$	—	$	—	$	4	$	—
Total Derivatives	$	—	$	(8)	$	(2)	$	5	$	18	$	(18)

Interest Rate Risk

During the second quarter of 2019, we entered into three interest-rate swap agreements with an aggregate notional value of $750 million, representing a portion of our Term Loan Facility, which effectively converted the variable rate to a fixed rate for that portion of the loan. The agreements were to expire in September 2024.

On March 27, 2023, the Company entered into amendments to two of our existing interest rate swap agreements with the counterparty banks. As a result of these amendments, the Company terminated two of our existing interest rate swap contracts which were indexed to LIBOR with an aggregate notional value of $500 million which had maturity dates of September 2024. At the time of these amendments, the Company determined that the interest payments hedged are still probable to occur, therefore, the gains accumulated of $11 million on the interest rate swaps prior to the amendments are being amortized into interest expense through September 22, 2024, the original maturity of the interest rate swap agreements.

We simultaneously entered into two SOFR-indexed forward starting interest rate swaps with the same counterparty banks with no change to the aggregate notional value. The forward starting swaps became effective in June 2023 and will mature in March 2028 which is aligned with the maturity date of the Term Loan Facility. Indexing forward starting swaps to SOFR also ensured that the reference rates in our hedge instruments are now aligned with the interest rate terms of the Term Loan Facility which also changed from LIBOR to SOFR in June 2023 in anticipation of Reference Rate Reform and pursuant to the loan agreement. We elected to apply the hedge accounting expedients in ASC Topic 848, Reference Rate Reform on Financial Reporting related to the following: 1) the assertion that the future forecasted transaction is still probable of occurring despite reference rate changes and 2) the assumption that the index of the future hedged transactions will match the index of the corresponding hedge instruments for the assessment of effectiveness.

Additionally, on March 27, 2023, the Company entered into a new interest rate swap with a $200 million notional value which matures in March 2028 and effectively converts the variable rate to a fixed rate for that portion of the 2022 Term Loan Facility.

On May 17, 2023, the Company entered into an agreement with the counterparty bank to amend the remaining $250 million notional of the three original interest rate swap contracts of $750 million aggregate notional value. As a result of this amendment, the Company changed the rate indexed in the contract from LIBOR to SOFR, effective June 30, 2023 in anticipation of the Reference Rate Reform and to align the index rate in this contract to that in the Term Loan Facility, as described above. This amendment did not change the notional value and the expiration date of this contract, which is set to expire in September 2024. We completed a hedge effectiveness test as a result of this amendment and determined that this hedge instrument continues to be highly effective, enabling us to continue to apply hedge accounting over the remaining term of this hedge relationship.

As of September 30, 2023, the Company maintains a total of $950 million of interest rate swaps with the objective in using the interest-rate swap agreements to add stability to interest expense and to manage the Company's exposure to interest rate movements. These interest rate swaps have been designated as cash flow hedges and involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

Fair value gains or losses on these cash flow hedges are recorded in accumulated other comprehensive loss and are subsequently reclassified into interest expense in the same periods during which the hedged transactions affect earnings. At September 30, 2023 and December 31, 2022, the net unrealized gain of $42 million and the unrealized gain of $30 million, respectively, was recorded in "Accumulated other comprehensive loss" on the unaudited Condensed Consolidated Balance Sheet. For the three and nine months ended September 30, 2023, the amounts recorded in interest expense related to the interest-rate swap agreements were $8 million and $18 million, respectively, of which $2 million for each period was reclassified from "Accumulated other comprehensive loss" to interest expense. For the three and nine months ended September 30, 2022, the net amounts recorded in interest expense related to the interest-rate swap agreements less than $1 million and $7 million, respectively.

Foreign Currency Risk

From time to time, we enter into foreign currency contracts used to hedge forecasted third party non-functional currency sales for our South African subsidiaries and forecasted non-functional currency cost of goods sold for our Australian subsidiaries. Historically, we have used a combination of zero-cost collars or forward contracts to reduce the exposure. These foreign currency contracts are designated as cash flow hedges. Changes to the fair value of these foreign currency contracts are recorded as a component of other comprehensive (loss) income, if these contracts remain highly effective, and are recognized in net sales or costs of goods sold in the period in which the forecasted transaction affects earnings or are recognized in other income, net when the transactions are no longer probable of occurring.

As of September 30, 2023, we had no outstanding amounts to reduce the exposure of our Australian subsidiaries’ cost of sales to fluctuations in currency rates or to reduce the exposure of our South African subsidiaries' third party sales to fluctuations in currency rates. At December 31, 2022, there was an unrealized net loss of $4 million recorded in "Accumulated other comprehensive loss" on the unaudited Condensed Consolidated Balance Sheet, which was fully recognized in earnings during the nine months ended September 30, 2023.

From time to time, we enter into foreign currency contracts for the South African Rand, Australian Dollar, Euro, Pound Sterling, and Saudi Riyal to reduce exposure of our subsidiaries’ balance sheet accounts not denominated in our subsidiaries’ functional currency to fluctuations in foreign currency exchange rates. Historically, we have used forward contracts to reduce the exposure. For accounting purposes, these foreign currency contracts are not considered hedges. The change in fair value associated with these contracts is recorded in “Other expense, net” within the unaudited Condensed Consolidated Statement of Operations and partially offsets the change in value of third party and intercompany-related receivables not denominated in the functional currency of the subsidiary. At September 30, 2023, there was (i) 496 million South African Rand (or approximately $26 million at September 30, 2023 exchange rate), (ii) 202 million Australian dollars (or approximately $130 million at the September 30, 2023 exchange rate), (iii) 11 million Pound Sterling (or approximately $14 million at the September 30, 2023 exchange rate), (iv) 47 million Euro (or approximately $50 million at the September 30, 2023 exchange rate), and (v) 51 million Saudi Riyal (or approximately $14 million at the September 30, 2023 exchange rate) of notional amounts of outstanding foreign currency contracts. At December 31, 2022, there was (i) 1.2 billion South African Rand (or approximately $64 million at the September 30, 2023 exchange rate), (ii) 197 million Australian dollars (or approximately $127 million at the September 30, 2023 exchange rate), (iii) 20 million Pound Sterling (or approximately $24 million at the September 30, 2023 exchange rate), and (iv) 44 million Euro (or approximately $47 million at the September 30, 2023 exchange rate) of notional amounts of outstanding foreign currency contracts.