Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

The Company is exposed to certain risks from fluctuations in foreign currency exchange rates, interest rates, and commodity prices. To reduce its exposure to such risks, the Company selectively uses derivative financial instruments. 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 derivative contracts contain credit risk to the extent that our bank counterparties may be unable to meet the terms of the agreements. The amount of such credit risk is generally limited to the unrealized gains, if any, in such contracts. Such risk is minimized by limiting those counterparties to major financial institutions of high credit quality.

The Company conducts business in various locations throughout the world and is subject to market risk associated with certain product sourcing activities and intercompany cash flows due to changes in the value of foreign currencies in relation to its reporting currency, the U.S. dollar. 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 Company utilizes foreign currency exchange contracts to mitigate the effects of foreign currency exchange rate fluctuations related to the Australian dollar, Canadian dollar, and Mexican peso. The Company's foreign currency exchange contracts generally have maturities of less than one year. The Company’s open foreign currency contracts, with maturities through June 2024, met the criteria for cash flow hedges.

The Company manages its interest rate risk by balancing its exposure to fixed and variable rates while attempting to optimize its interest costs. The Company enters into interest rate swap transactions to hedge the variable interest rate payments for the Term Loan Facility. In connection with these contracts, the Company pays interest based upon a fixed rate and receives

variable rate interest payments based on adjusted Term SOFR. These contracts, with maturities through February 2026, met the criteria for cash flow hedges.

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 commodity contracts generally have maturities of less than one year.

The notional and fair values of the Company’s derivative financial instruments designated as cash flow hedges were as follows (in millions):


	September 30, 2023						December 31, 2022
	Notional Value (in U.S. Dollars)		Fair Value — Assets		Fair Value — Liabilities		Notional Value (in U.S. Dollars)		Fair Value — Assets		Fair Value — Liabilities
Foreign currency contracts	$	231.9	$	10.0	$	(0.7)	$	154.0	$	8.4	$	—
Interest rate contracts	400.0		7.9		—		550.0		5.9		—
Commodity contracts	32.3		1.3		(0.5)		—		—		—
Total	$	664.2	$	19.2	$	(1.2)	$	704.0	$	14.3	$	—

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 amounts of gains and losses related to the Company’s derivative financial instruments designated as cash flow hedges were as follows (in millions):


Derivatives Designated as Cash Flow Hedges	Location of Gain (Loss) Reclassified from Accumulated OCI into Income	Gain (Loss) Reclassified from AOCI into Income								Gain (Loss) Recognized in OCI
		Three months ended September 30,				Nine months ended September 30,				Three months ended September 30,				Nine months ended September 30,
		2023		2022		2023		2022		2023		2022		2023		2022
Commodity contracts	Cost of sales	$	0.9	$	—	$	0.1	$	—	$	(0.2)	$	(0.3)	$	1.2	$	(0.7)
Interest rate contracts	Interest expense	2.3		1.0		7.4		(2.0)		1.0		1.2		1.6		11.3
Foreign exchange contracts	Other (income) expense, net	13.2		2.0		17.7		5.0		(1.2)		7.3		0.7		12.0
Total		$	16.4	$	3.0	$	25.2	$	3.0	$	(0.4)	$	8.2	$	3.5	$	22.6

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 is recognized currently in the consolidated statements of income and were not material for the periods presented.

The net amount of the existing gains or losses as of September 30, 2023 that is expected to be reclassified into the statements of income within the next 12 months is not expected to be material.