FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedging

In the normal course of business, the Company is exposed to risks relating to changes in interest rates, foreign currency exchange rates and commodity prices. Derivative financial instruments, such as interest rate swaps, net investment hedges, foreign currency exchange forward contracts and commodities derivative contracts are used to manage the risks associated with changes in the conditions of those markets. All derivatives are recognized in the Consolidated Balance Sheets at fair value. The counterparties to the Company’s derivative agreements are primarily major international financial institutions. The Company continually monitors its derivative positions and the credit ratings of its counterparties and does not anticipate nonperformance on their part.

Interest Rate and Cross-Currency Swaps

The Company uses interest rate swaps and cross-currency swaps to reduce its exposure to interest rate risk and foreign currency risk. The Company has designated the interest rate swaps as cash flow hedges and the cross-currency swaps as net investment hedges. The proceeds from these contracts are reflected as "Cash flows from operating activities" in the Consolidated Statement of Cash Flows. Changes in the fair value of interest rate swaps are recorded in "Accumulated other comprehensive loss" and reclassified to "Interest expense, net" in the Consolidated Statements of Operations as the underlying hedged item affects earnings. Changes in the fair value of cross-currency swaps are recorded in "Foreign currency translation" in "Accumulated other comprehensive loss." These cross-currency swaps effectively convert the Company's term loans under the Credit Agreement, which are U.S. dollar denominated debt obligations, into fixed-rate euro-denominated debt through the expiration of the swaps.

In 2021, the Company entered into interest rate swaps (as amended on October 24, 2022 in connection with the term loan transition to SOFR) to effectively fix the floating rate of the interest payments associated with the $400 million Add-on Term Loans through January 2025. These contracts were designated as a cash flow hedge. The Company also entered into cross-currency swaps, as amended on April 1, 2022, to effectively convert the $400 million Add-on Term Loans, which are U.S. dollar denominated debt obligations, into fixed-rate euro-denominated debt through January 2025. The Company designated these contracts as a net investment hedge of the foreign currency exposure of a portion of its net investment in certain euro functional subsidiaries. These interest rate swaps and cross-currency swaps expire in January 2025.

In 2019, the Company entered into interest rate swaps (as amended on October 24, 2022 in connection with the term loan transition to SOFR) to effectively fix the floating rate of the interest payments associated with the initial $750 million term loans under the Credit Agreement through January 2024. These contracts were designated as a cash flow hedge. The Company also entered into cross-currency swaps to effectively convert the $750 million term loans, which are U.S. dollar denominated debt obligations, into fixed-rate euro-denominated debt through January 2024. The Company designated these contracts as a net investment hedge of the foreign currency exposure of a portion of its net investment in certain euro functional subsidiaries. These interest rate swaps and cross-currency swaps expire in January 2024.

The net result of the above hedges is an interest rate of approximately 1.6% at December 31, 2022, which could vary in the future due to changes in the euro and the U.S. dollar exchange rate. The fair value of the interest rate swaps was a net asset of $47.3 million at December 31, 2022 and a net liability of $18.1 million at December 31, 2021. The fair value of the cross-currency swaps was a net asset of $70.4 million and $25.2 million at December 31, 2022 and 2021, respectively.

During 2022 and 2021, these interest rate swaps and cross-currency swaps were deemed highly effective. The Company expects to reclassify a benefit of $32.7 million from "Accumulated other comprehensive loss" to "Interest expense, net" in the Consolidated Statements of Operations within the next twelve months.

Foreign Currency

The Company conducts a significant portion of its business in currencies other than the U.S. dollar and certain subsidiaries conduct business in currencies other than their functional currency, which is typically their local currency. As a result, the Company’s operating results are impacted by foreign currency exchange rate volatility.

At December 31, 2022, the Company held foreign currency forward contracts to purchase and sell various currencies to mitigate foreign currency exposure, primarily with the U.S. dollar and British pound. The Company has not designated any foreign currency exchange forward contracts as eligible for hedge accounting and, as a result, changes in the fair value of foreign currency forward contracts are recorded in the Consolidated Statements of Operations as "Other income (expense), net." The total notional value of foreign currency exchange forward contracts held at December 31, 2022 and 2021 was approximately $105 million and $64.6 million, respectively, with settlement dates generally within one year. The fair value of the foreign currency forward contracts was a net current liability of $0.3 million and a $0.1 million at December 31, 2022 and 2021, respectively.

Commodities

As part of its risk management policy, the Company enters into commodity derivative contracts for the purpose of mitigating its exposure to fluctuations in prices of certain metals used in the production of its finished goods. The Company held derivative contracts to purchase and sell various metals, primarily tin and silver, for a notional amount of $45.7 million and $56.1 million at December 31, 2022 and 2021, respectively. The fair value of the metals derivative contracts was a net current liability of $2.5 million and $1.1 million at December 31, 2022 and 2021, respectively. Substantially all contracts outstanding at December 31, 2022 have delivery dates within one year. The Company has not designated these derivatives as hedging instruments and, accordingly, records changes in their fair values in the Consolidated Statements of Operations as "Other income (expense), net."

Realized gains and losses on derivative contracts are accounted for in the Consolidated Statements of Cash Flows as "Operating activities."

Fair Value Measurements

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis:


			December 31,
(dollars in millions)	Balance sheet location	Classification	2022		2021
Asset Category
Foreign exchange contracts	Other current assets	Level 2	$	0.2	$	0.1
Metals contracts	Other current assets	Level 2	2.5		1.2
Interest rate swaps	Other current assets	Level 2	32.7		—
Cross-currency swaps	Other current assets	Level 2	26.1		22.2
Interest rate swaps	Other assets	Level 2	14.6		6.6
Cross-currency swaps	Other assets	Level 2	44.3		5.8
Available-for-sale debt securities	Other assets	Level 3	11.5		—
Total			$	131.9	$	35.9

Liability Category
Foreign exchange contracts	Accrued expenses and other current liabilities	Level 2	$	0.5	$	0.2
Metals contracts	Accrued expenses and other current liabilities	Level 2	5.0		2.3
Interest rate swaps	Accrued expenses and other current liabilities	Level 2	—		15.1
Interest rate swaps	Other liabilities	Level 2	—		9.6
Cross-currency swaps	Other liabilities	Level 2	—		2.8
Total			$	5.5	$	30.0

The fair values of Level 1 and Level 2 derivative assets and liabilities are determined using pricing models based upon observable market inputs, such as market spot and futures prices on over-the-counter derivative instruments, market interest rates and consideration of counterparty credit risk. Level 3 investments are valued using a probability weighted methodology based on possible outcomes of potential liquidity events. Significant assumptions include the enterprise valuation, the timing and type of liquidation events and the risk-free interest rate.

There were no significant transfers of financial instruments between the fair value hierarchy levels during 2022.

The carrying value and estimated fair value of the Company’s long-term debt totaled $1.90 billion and $1.80 billion, respectively, at December 31, 2022. At December 31, 2021, the carrying value and estimated fair value totaled $1.90 billion and $1.93 billion, respectively. The carrying values noted above include unamortized discounts and debt issuance costs. The estimated fair value of long-term debt is measured using quoted market prices for similar instruments at the reporting date multiplied by the gross carrying amount of the related debt, which excludes unamortized discounts and debt issuance costs. Such instruments are valued using Level 2 inputs.