Derivatives and Financial Instruments

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative financial instruments

We are exposed to market risk related to changes in foreign currency exchange rates. To manage the volatility related to this exposure, we periodically enter into a variety of derivative financial instruments. Our objective is to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in foreign currency exchange rates. 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.

Foreign currency contracts

We conduct business in various locations throughout the world and are subject to market risk due to changes in the value of foreign currencies. We manage our economic and transaction exposure to certain market-based risks through the use of derivative instruments. These derivative instruments primarily consist of forward foreign currency contracts used to mitigate foreign currency exposure for certain foreign currency assets and liabilities. Our objective in holding these derivatives is to reduce the volatility in net earnings and cash flows associated with changes in foreign currency rates. The majority of our foreign currency contracts have an original maturity date of less than one year. These foreign currency contracts are not designated as hedging instruments; accordingly, changes in the fair value are recorded in current period earnings.

At September 30, 2023 and December 31, 2022, we had outstanding foreign currency derivative contracts with gross notional U.S. dollar equivalent amounts of $153.8 million and $145.7 million, respectively. The impact of these contracts on the Condensed Consolidated Statements of Income and Comprehensive Income was not material for any period presented.

Cross currency swaps

At September 30, 2023 and December 31, 2022, we had outstanding cross currency swap agreements with a combined notional amount of $249.9 million and $345.1 million, respectively. The agreements are accounted for as either cash flow hedges, to hedge foreign currency fluctuations on certain intercompany debt, or as net investment hedges, to manage our exposure to fluctuations in the Euro-U.S. Dollar exchange rate. In 2023, a cash flow hedge instrument and a net investment hedge instrument each reached maturity, resulting in settlement amounts reflected as a component of financing and investing cash inflows in the amount of $4.5 million and $3.1 million, respectively. Upon maturity of the previous agreement, we entered into a new net investment hedge of certain Euro-denominated subsidiaries to manage exposure to fluctuations in the Euro-U.S. dollar exchange rate with a gross notional U.S. dollar equivalent amount of $66.1 million. In the third quarter of 2022, as a result of an early settlement of a cash flow hedge instrument, $10.0 million of cash flows has been reflected as a component of financing cash flows and $0.3 million of expense was recorded to Selling, general and administrative expense from Accumulated other comprehensive loss. We entered a cross currency swap with a gross notional U.S. dollar equivalent amount of $121.0 million to replace the terminated agreement, which we designated as a fair value hedge to offset foreign currency risk associated with intercompany debt. At September 30, 2023 and December 31, 2022, we had deferred foreign currency gains of $5.1 million and $18.9 million, respectively, in Accumulated other comprehensive loss associated with our cross currency swap activity.

Fair value of financial instruments

The following methods were used to estimate the fair values of each class of financial instrument:

•short-term financial instruments (cash and cash equivalents, accounts and notes receivable, accounts and notes payable and variable-rate debt) — recorded amount approximates fair value because of the short maturity period;

•long-term fixed-rate debt, including current maturities — fair value is based on market quotes available for issuance of debt with similar terms, which are inputs that are classified as Level 2 in the valuation hierarchy defined by the accounting guidance;

•cross currency swap and foreign currency contract agreements — fair values are determined through the use of models that consider various assumptions, including time value, yield curves, as well as other relevant economic measures, which are inputs that are classified as Level 2 in the valuation hierarchy defined by the accounting guidance; and

•deferred compensation plan assets (mutual funds, common/collective trusts and cash equivalents for payment of certain non-qualified benefits for retired, terminated and active employees) — fair value of mutual funds and cash equivalents are based on quoted market prices in active markets that are classified as Level 1 in the valuation hierarchy defined by the

accounting guidance; fair value of common/collective trusts are valued at net asset value ("NAV"), which is based on the fair value of underlying securities owned by the fund divided by the number of shares outstanding.

The recorded amounts and estimated fair values of total debt, excluding unamortized issuance costs and discounts, were as follows:


	September 30, 2023				December 31, 2022
In millions	Recorded Amount		Fair Value		Recorded Amount		Fair Value
Variable rate debt	$	573.8	$	573.8	$	288.8	$	288.8
Fixed rate debt	1,300.0		1,182.2		800.0		717.7
Total debt	$	1,873.8	$	1,756.0	$	1,088.8	$	1,006.5

Financial assets and liabilities measured at fair value on a recurring basis were as follows:


Recurring fair value measurements	September 30, 2023
In millions	Level 1		Level 2		Level 3		NAV		Total
Cross currency swap liabilities	$	—	$	(6.0)	$	—	$	—	$	(6.0)
Cross currency swap assets	—		9.2		—		—		9.2
Foreign currency contract liabilities	—		(1.2)		—		—		(1.2)
Foreign currency contract assets	—		1.1		—		—		1.1

Deferred compensation plan assets	11.9		—		—		5.5		17.4
Total recurring fair value measurements	$	11.9	$	3.1	$	—	$	5.5	$	20.5


Recurring fair value measurements	December 31, 2022
In millions	Level 1		Level 2		Level 3		NAV		Total
Cross currency swap liabilities	$	—	$	(4.8)	$	—	$	—	$	(4.8)
Cross currency swap assets	—		22.4		—		—		22.4
Foreign currency contract liabilities	—		(1.5)		—		—		(1.5)
Foreign currency contract assets	—		0.5		—		—		0.5
Deferred compensation plan assets	11.8		—		—		4.9		16.7

Total recurring fair value measurements	$	11.8	$	16.6	$	—	$	4.9	$	33.3