Derivative Instruments (Notes)

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Derivative Instruments

Derivatives Designated as Hedging Instruments

In July 2022, the Company entered into cross-currency swap agreements to hedge its net investment in Euro-denominated assets against future volatility in the exchange rate between the U.S. dollar and the Euro. By doing so, the Company synthetically converts a portion of its U.S. dollar-based long-term debt into Euro-denominated long-term debt. The agreements have notional amounts totaling $150.0 million, which decline to $75.0 million over contract periods ending on October 15, 2023 and April 15, 2024. Under the terms of the agreements, the Company is to receive net interest payments at fixed rates of approximately 2.4% to 2.6% of the notional amounts. At inception, the cross-currency swaps were designated as net investment hedges.

In July 2022, immediately prior to entering into the new cross-currency swap agreements, the Company terminated its existing cross-currency swap agreements, de-designating the swaps as net investment hedges and receiving $26.2 million of cash. The cross-currency swap agreements had notional amounts totaling $250.0 million, which declined to $25.0 million over various contract periods ending between October 15, 2023 and October 15, 2027. Under the terms of the agreements, the Company was to receive net interest payments at fixed rates ranging from approximately 0.8% to 2.9% of the notional amounts.

As of September 30, 2023 and December 31, 2022, the fair value carrying amount of the Company's derivatives designated as hedging instruments are recorded as follows (dollars in thousands):

		Asset / (Liability) Derivatives
Derivatives designated as hedging instruments	Balance Sheet Caption	September 30, 2023		December 31, 2022
Net Investment Hedges
Cross-currency swaps	Accrued liabilities	$	(6,270)	$	—
Cross-currency swaps	Other long-term liabilities	—		(7,090)

The following table summarizes the income recognized in accumulated other comprehensive income (loss) ("AOCI") on derivative contracts designated as hedging instruments as of September 30, 2023 and December 31, 2022, and the amounts reclassified from AOCI into earnings for the three and nine months ended September 30, 2023 and 2022 (dollars in thousands):

	Amount of Income Recognized in AOCI on Derivatives (Effective Portion, net of tax)					Amount of Income (Loss) Reclassified from AOCI into Earnings
						Three months ended September 30,				Nine months ended September 30,
	As of September 30, 2023		As of December 31, 2022		Location of Income Reclassified from AOCI into Earnings (Effective Portion)	2023		2022		2023		2022
Net Investment Hedges
Cross-currency swaps	$	15,950	$	15,320	Other income (expense), net	$	—	$	—	$	—	$	—

Over the next 12 months, the Company does not expect to reclassify any pre-tax deferred amounts from AOCI into earnings.

Derivatives Not Designated as Hedging Instruments

As of September 30, 2023, the Company was party to foreign currency exchange forward contracts to economically hedge changes in foreign currency rates with notional amounts of $183.3 million. The Company uses foreign exchange contracts to mitigate the risk associated with fluctuations in currency rates impacting cash flows related to certain of its receivables, payables and intercompany transactions denominated in foreign currencies. The foreign exchange contracts primarily mitigate currency exposures between the U.S. dollar and the Euro, Canadian dollar, Chinese yuan, and the Mexican peso, as well as between the Euro and British pound, and have various settlement dates through December 31, 2023. These contracts are not designated as hedge instruments; therefore, gains and losses on these contracts are recognized each period directly into the consolidated statement of income.

The following table summarizes the effects of derivatives not designated as hedging instruments on the Company's consolidated statement of income (dollars in thousands):

		Amount of Income Recognized in Earnings on Derivatives
		Three months ended September 30,				Nine months ended September 30,
	Location of Income Recognized in Earnings on Derivatives	2023		2022		2023		2022
Derivatives not designated as hedging instruments
Foreign exchange contracts	Other income (expense), net	$	940	$	2,860	$	130	$	6,170

Fair Value of Derivatives

The fair value of the Company's derivatives are estimated using an income approach based on valuation techniques to convert future amounts to a single, discounted amount. Estimates of the fair value of the Company's cross-currency swaps and foreign exchange contracts use observable inputs such as interest rate yield curves and forward currency exchange rates. Fair value measurements and the fair value hierarchy level for the Company's assets and liabilities measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 are shown below (dollars in thousands):  

Description	Frequency	Asset / (Liability)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2023
Cross-currency swaps	Recurring	$	(6,270)	$	—	$	(6,270)	$	—
Foreign exchange contracts	Recurring	$	(1,460)	$	—	$	(1,460)	$	—
December 31, 2022
Cross-currency swaps	Recurring	$	(7,090)	$	—	$	(7,090)	$	—
Foreign exchange contracts	Recurring	$	(1,790)	$	—	$	(1,790)	$	—