DERIVATIVE FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

For purposes of mitigating the effect of changes in exchange rates, we hold derivative financial instruments to hedge the risks of certain identifiable and anticipated transactions and recorded assets and liabilities in our condensed consolidated balance sheets. The types of risks hedged are those relating to the variability of future earnings and cash flows caused by movements in foreign currency exchange rates. Our policy is to hold derivatives only for the purpose of hedging risks associated with anticipated foreign currency purchases and sales created in the normal course of business, and not for speculative purposes.

Generally, we enter into hedging relationships such that changes in the fair values or cash flows of the transactions being hedged are expected to be offset by corresponding changes in the fair value of the derivatives. For derivative instruments that qualify as a cash flow hedge, the effective portion of the gain or loss of the derivative, which does not include the time value component of a forward currency rate, is reported as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For derivative instruments not designated as hedging instruments, any change in the fair value of those instruments is reflected in earnings in the period such change occurs. Cash flows related to derivatives designated as cash flow and fair value hedges are classified consistently with the cash flows of the associated hedged item.

We hold the following types of derivative instruments:

Foreign exchange rate forward contracts - The purpose of these instruments is to hedge the risk of changes in future cash flows of anticipated purchase or sale commitments denominated in foreign currencies and recorded assets and liabilities in our condensed consolidated balance sheets. As of September 30, 2023, we held the following material net positions:


	Net Notional Amount Bought (Sold)
(In millions)		USD Equivalent
Euro	1,472.6	1,560.2
Norwegian krone	4,250.1	400.0
Australian dollar	349.0	226.2
Brazilian real	1,061.8	212.1
Indonesian rupiah	2,006,373.6	129.6
Singapore dollar	84.1	61.6
Canadian dollar	66.3	49.3
Czech koruna	372.1	16.2
Malaysian ringgit	64.7	13.8
Indian rupee	1,111.5	13.4
Swedish krona	114.1	10.5
British pound	(48.0)	(58.8)
U.S. dollar	(2,711.1)	(2,711.1)

Foreign exchange rate instruments embedded in purchase and sale contracts - The purpose of these instruments is to match offsetting currency payments and receipts for particular projects or comply with government restrictions on the currency used to purchase goods in certain countries. As of September 30, 2023, our portfolio of these instruments included the following material net positions:


	Net Notional Amount Bought (Sold)
(In millions)		USD Equivalent
Brazilian real	28.4	5.7
Norwegian krone	3.3	0.3
Euro	(16.9)	(17.9)
U.S. dollar	12.9	12.9

Fair value amounts for all outstanding derivative instruments have been determined using available market information and commonly accepted valuation methodologies. See Note 16 for further details. Accordingly, the estimates presented may not be indicative of the amounts we would realize in a current market exchange and may not be indicative of the gains or losses we may ultimately incur when these contracts are settled.

The following table presents the location and fair value amounts of derivative instruments reported in the condensed consolidated balance sheets:


	September 30, 2023				December 31, 2022
(In millions)	Assets		Liabilities		Assets		Liabilities
Derivatives designated as hedging instruments
Foreign exchange contracts
Current - Derivative financial instruments	$	123.1	$	164.5	$	254.8	$	332.5
Long-term - Derivative financial instruments	12.6		25.6		7.2		3.6
Total derivatives designated as hedging instruments	135.7		190.1		262.0		336.1
Derivatives not designated as hedging instruments
Foreign exchange contracts
Current - Derivative financial instruments	16.8		23.7		27.9		14.1
Long-term - Derivative financial instruments	0.1		—		—		—
Total derivatives not designated as hedging instruments	16.9		23.7		27.9		14.1
Total derivatives	$	152.6	$	213.8	$	289.9	$	350.2

Cash flow hedges of forecasted transactions, net of tax, which qualify for hedge accounting, resulted in accumulated other comprehensive loss of $41.6 million and accumulated other comprehensive income of $18.5 million as of September 30, 2023 and December 31, 2022, respectively. We expect to transfer an approximate $2.3 million loss from accumulated OCI to earnings during the next 12 months when the anticipated transactions actually occur. All anticipated transactions currently being hedged are expected to occur by the second half of 2026.

The following table presents the gains (losses) recognized in other comprehensive income related to derivative instruments designated as cash flow hedges:


	Gain (Loss) Recognized in OCI
	Three Months Ended				Nine Months Ended September 30,
(In millions)	2023		2022		2023		2022
Foreign exchange contracts	$	1.4	$	(43.9)	$	(16.3)	$	(107.6)

The following table represents the effect of cash flow hedge accounting in the condensed consolidated statements of income for the three and nine months ended September 30, 2023 and 2022:


(In millions)	Three Months Ended September 30, 2023								Three Months Ended September 30, 2022
Total amount of income (expense) presented in the consolidated statements of income associated with hedges and derivatives	Revenue		Cost of sales		Selling, general and administrative expense		Other income (expense), net		Revenue		Cost of sales		Selling, general and administrative expense		Other income (expense), net


Amounts reclassified from accumulated OCI to income (loss)	$	(0.6)	$	21.7	$	(0.1)	$	(1.6)	$	(1.4)	$	(5.6)	$	—	$	(2.2)
Amounts excluded from effectiveness testing	6.5		(6.8)		(0.4)		(8.5)		5.2		(4.8)		(0.1)		(11.7)
Total cash flow hedge gain (loss) recognized in income	5.9		14.9		(0.5)		(10.1)		3.8		(10.4)		(0.1)		(13.9)
Total hedge gain (loss) recognized in income	$	5.9	$	14.9	$	(0.5)	$	(10.1)	$	3.8	$	(10.4)	$	(0.1)	$	(13.9)

Loss recognized in income on derivatives not designated as hedging instruments	—		(0.5)		—		(29.6)		0.1		0.6		—		(22.0)
Total	$	5.9	$	14.4	$	(0.5)	$	(39.7)	$	3.9	$	(9.8)	$	(0.1)	$	(35.9)


(In millions)	Nine Months Ended September 30, 2023								Nine Months Ended September 30, 2022
Total amount of income (expense) presented in the consolidated statements of income associated with hedges and derivatives	Revenue		Cost of sales		Selling, general and administrative expense		Other income (expense), net		Revenue		Cost of sales		Selling, general and administrative expense		Other income (expense), net


Amounts reclassified from accumulated OCI to income (loss)	$	(9.0)	$	22.4	$	(0.2)	$	(6.0)	$	(1.9)	$	(12.6)	$	(0.3)	$	(11.1)
Amounts excluded from effectiveness testing	15.1		(27.4)		(1.0)		69.8		8.2		(8.6)		0.4		(31.3)
Total cash flow hedge gain (loss) recognized in income	6.1		(5.0)		(1.2)		63.8		6.3		(21.2)		0.1		(42.4)
Total hedge gain (loss) recognized in income	6.1		(5.0)		(1.2)		63.8		6.3		(21.2)		0.1		(42.4)

Gain (loss) recognized in income on derivatives not designated as hedging instruments	(0.1)		(0.8)		—		(33.1)		—		(0.8)		—		(8.0)
Total	$	6.0	$	(5.8)	$	(1.2)	$	30.7	$	6.3	$	(22.0)	$	0.1	$	(50.4)

Balance Sheet Offsetting - We execute derivative contracts with counterparties that consent to a master netting agreement, which permits net settlement of the gross derivative assets against gross derivative liabilities. Each instrument is accounted for individually and assets and liabilities are not offset. As of September 30, 2023 and December 31, 2022, we had no collateralized derivative contracts. The following tables present both gross information and net information of recognized derivative instruments:


	September 30, 2023						December 31, 2022
(In millions)	Gross Amount Recognized		Gross Amounts Not Offset, Permitted Under Master Netting Agreements		Net Amount		Gross Amount Recognized		Gross Amounts Not Offset, Permitted Under Master Netting Agreements		Net Amount
Derivative assets	$	152.6	$	(98.5)	$	54.1	$	289.9	$	(142.5)	$	147.4
Derivative liabilities	$	213.8	$	(98.5)	$	115.3	$	350.2	$	(142.5)	$	207.7