Derivative Instruments and Hedging Activities

12 Months Ended

Dec. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are foreign currency risk, interest rate risk, and commodity price fluctuations. Derivative contracts

on various currencies are entered into in order to manage foreign currency exposures associated with certain product sourcing activities and intercompany cash flows. Interest rate swaps are entered into in order to maintain a balanced risk of fixed and floating interest rates associated with the Company’s debt. Commodity hedging contracts are entered into in order to manage fluctuating market prices of certain purchased commodities and raw materials that are integrated into the Company’s end products.

The Company’s foreign currency management objective is to mitigate the potential impact of currency fluctuations on the value of its U.S. dollar cash flows and to reduce the variability of certain cash flows at the subsidiary level. The Company actively manages certain forecasted foreign currency exposures and uses a centralized currency management operation to take advantage of potential opportunities to naturally offset foreign currency exposures. The decision of whether and when to execute derivative instruments, along with the duration of the instrument, may vary from period to period depending on market conditions, the relative costs of the instruments and capacity to hedge. The duration is linked to the timing of the underlying exposure, with the connection between the two being regularly monitored. The Company does not use any financial contracts for trading purposes. The Company’s open foreign currency contracts, with maturities through December 2023, met the criteria for cash flow hedges.

As of December 31, 2022 and 2021, the Company had the following open foreign currency contracts (in millions):

	December 31, 2022				December 31, 2021
Foreign Currency	Notional Amounts (in U.S. dollars)		Net Unrealized Gain (Loss)		Notional Amounts (in U.S. dollars)		Net Unrealized Gain (Loss)
Australian Dollar	$	13.7	$	0.2	$	20.3	$	0.4
Canadian Dollar	93.3		2.5		121.1		0.6
Mexican Peso	47.0		5.7		87.9		1.1
Total	$	154.0	$	8.4	$	229.3	$	2.1

The Company enters into interest rate swap transactions to hedge the variable interest rate payments for the Term Loan Facility. In connection with these transactions, the Company pays interest based upon a fixed rate and receives variable rate interest payments based on adjusted Term SOFR. As of December 31, 2022 and 2021, the Company had outstanding interest rate swaps with notional amounts of $550.0 million. These contracts, with maturities through February 2026, met the criteria for cash flow hedges. As of December 31, 2022 and 2021, the net unrealized gain (loss) associated with these swaps was $5.9 million and $(7.8) million, respectively.

The table below summarizes the carrying values of derivative instruments as of December 31, 2022 and 2021 (in millions):

	Carrying Values of Derivative Instruments as of December 31, 2022
	Fair Value— Assets		Fair Value— (Liabilities)		Derivative Net Carrying Value
Derivatives designated as hedging instruments
Foreign exchange contracts	$	8.4	$	—	$	8.4
Interest rate contracts	5.9		—		5.9
Total derivatives designated as hedging instruments	$	14.3	$	—	$	14.3

	Carrying Values of Derivative Instruments as of December 31, 2021
	Fair Value— Assets		Fair Value— (Liabilities)		Derivative Net Carrying Value
Derivatives designated as hedging instruments
Foreign exchange contracts	$	2.4	$	(0.3)	$	2.1
Interest rate contracts	—		(7.8)		(7.8)
Total derivatives designated as hedging instruments	$	2.4	$	(8.1)	$	(5.7)

Assets are included in prepaid expenses and other and liabilities are included in accrued expenses in the consolidated balance sheets. Assets and liabilities are offset in the consolidated balance sheet if the right of offset exists. The unrealized gains or losses, after tax, are recorded as a component of accumulated other comprehensive loss in shareholders’ equity. Gains and losses on derivative instruments representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized currently in the consolidated statements of income.

The amount of gains (losses), net of tax, related to the effective portion of derivative instruments designated as cash flow hedges included in other comprehensive loss for the years ended December 31, 2022 and 2021 were $14.9 million and $11.1 million, respectively. 

See Note 10 for additional information about the amount of gains and losses, net of tax, reclassified from accumulated other comprehensive loss into the statements of income for derivative instruments designated as hedging instruments. The ineffective portion of foreign currency contracts was not material for the years ended December 31, 2022 and 2021.