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Financial Instruments and Derivative Instruments | 9 Months Ended
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Sep. 24, 2023
Financial Instruments and Derivative Instruments |
Financial Instruments and Derivative Instruments | 11. Financial Instruments and Derivative Instruments ​ Fair Value ​ The carrying amounts of cash and cash equivalents, trade receivables and trade payables approximate fair value because of the short maturity of these financial instruments. The fair value of the Company’s variable rate debt under the Revolving Credit Facility approximates its carrying value. ​ Financial Instruments ​ The Company measures certain financial assets and liabilities at fair value on a recurring basis, including deferred compensation plan assets and related liabilities, contingent consideration and derivatives. The fair values of these financial assets and liabilities were determined using the following inputs as of September 24, 2023 and December 31, 2022: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Fair Value Measurement at September 24, 2023 Using:
​ | ​ | ​ | ​ | ​ | Quoted Prices in Active | ​ | Significant Other | ​ | Significant
​ | ​ | ​ | ​ | ​ | Markets for Identical | ​ | Observable | ​ | Unobservable
​ | ​ | ​ | ​ | ​ | Assets | ​ | Inputs | ​ | Inputs
​ |  | Total |  | (Level 1) |  | (Level 2) |  | (Level 3)
​ | ​ | (in millions)
Assets | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Plan asset for deferred compensation(1) | ​ | $ | 2.1 | ​ | $ | 2.1 | ​ | $ | — | ​ | $ | —
Interest rate swap(2) | ​ | $ | 9.0 | ​ | $ | — | ​ | $ | 9.0 | ​ | $ | —
Total assets | ​ | $ | 11.1 | ​ | $ | 2.1 | ​ | $ | 9.0 | ​ | $ | —
Liabilities | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Plan liability for deferred compensation(3) | ​ | $ | 2.1 | ​ | $ | 2.1 | ​ | $ | — | ​ | $ | —
Contingent consideration(5) | ​ | $ | 2.5 | ​ | $ | — | ​ | $ | — | ​ | $ | 2.5
Total liabilities | ​ | $ | 4.6 | ​ | $ | 2.1 | ​ | $ | — | ​ | $ | 2.5
​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Fair Value Measurements at December 31, 2022 Using:
​ | ​ | ​ | ​ | ​ | Quoted Prices in Active | ​ | Significant Other | ​ | Significant
​ | ​ | ​ | ​ | ​ | Markets for Identical | ​ | Observable | ​ | Unobservable
​ |  | ​ | ​ | ​ | Assets | ​ | Inputs | ​ | Inputs
​ | ​ | Total |  | (Level 1) |  | (Level 2) |  | (Level 3)
​ | ​ | (in millions)
Assets | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Plan asset for deferred compensation(1) | ​ | $ | 1.9 | ​ | $ | 1.9 | ​ | $ | — | ​ | $ | —
Interest rate swap(2) | ​ | $ | 9.3 | ​ | $ | — | ​ | $ | 9.3 | ​ | $ | —
Designated foreign currency hedges(4) | ​ | $ | 0.2 | ​ | $ | — | ​ | $ | 0.2 | ​ | $ | ​
Total assets | ​ | $ | 11.4 | ​ | $ | 1.9 | ​ | $ | 9.5 | ​ | $ | —
Liabilities | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Plan liability for deferred compensation(3) | ​ | $ | 1.9 | ​ | $ | 1.9 | ​ | $ | — | ​ | $ | —
Contingent consideration(5) | ​ | $ | 2.5 | ​ | $ | — | ​ | $ | — | ​ | $ | 2.5
Total liabilities | ​ | $ | 4.4 | ​ | $ | 1.9 | ​ | $ | — | ​ | $ | 2.5
(1) | Included on the Company’s consolidated balance sheet in other assets (other, net).
​
(2) | As of September 24, 2023, $4.1 million classified in prepaid expenses and other current assets on the Company’s consolidated balance sheet and $4.9 million classified in other assets (other, net). As of December 31, 2022, $3.5 million classified in prepaid expenses and other current assets on the Company’s consolidated balance sheet and $5.8 million classified in other assets (other, net).
​
(3) | Included on the Company’s consolidated balance sheet in accrued compensation and benefits.
​ (4)Included on the Company’s consolidated balance sheet in prepaid expenses and other current assets. ​ (5)As of September 24, 2023 and December 31, 2022, contingent consideration of $2.5 million related to an immaterial acquisition. The September 24, 2023 liability was classified in accrued expenses and other liabilities, and the December 31, 2022 liability was classified in other noncurrent liabilities on the Company’s consolidated balance sheet. ​ In connection with the immaterial acquisition of Sentinel Hydrosolutions, LLC (“Sentinel”), completed during the fourth quarter of 2021, a contingent liability of $2.5 million was recognized as the estimate of the acquisition date fair value of the contingent consideration. This liability was classified as Level 3 under the fair value hierarchy as it was based on the probability of achievement of future performance metrics as of the date of acquisition, which was not observable in the market. Failure to meet the performance metrics would reduce this liability to zero, while complete achievement would increase the liability to a maximum contingent consideration of approximately $4.5 million. The Sentinel contingent liability will be settled in the first quarter of 2024. ​ Cash equivalents consist of instruments with remaining maturities of three months or less at the date of purchase and consist primarily of money market funds, for which the carrying amount is a reasonable estimate of fair value. ​ The Company uses financial instruments from time to time to enhance its ability to manage risk, including foreign currency and commodity pricing exposures, which exist as part of its ongoing business operations. The use of derivatives exposes the Company to counterparty credit risk for nonperformance and to market risk related to changes in currency exchange rates and commodity prices. The Company manages its exposure to counterparty credit risk through diversification of counterparties. The Company’s counterparties in derivative transactions are substantial commercial banks with significant experience using such derivative instruments. The impact of market risk on the fair value and cash flows of the Company’s derivative instruments is monitored and the Company restricts the use of derivative financial instruments to hedging activities. The Company does not enter into contracts for trading purposes nor does the Company enter into any contracts for speculative purposes. The use of derivative instruments is approved by senior management under written guidelines. ​ Interest Rate Swaps ​ On March 30, 2021, the Company entered into the Credit Agreement which extended the maturity date of the $800 million senior unsecured revolving credit facility from February 12, 2022 to March 30, 2026. On August 2, 2022, the Company entered into Amendment No. 1 to the Credit Agreement to replace the LIBOR as a reference rate for borrowings with Term SOFR and to provide for a fixed adjustment of 10 basis points added to Term SOFR for all Term SOFR borrowings, subject to a 0.00% floor. Borrowings outstanding under the Revolving Credit Facility bear interest at a fluctuating rate per annum as further detailed in Note 10. ​ In order to manage the Company’s exposure to changes in cash flows attributable to fluctuations in interest payments related to the Company’s floating rate debt, the Company entered into an interest rate swap on March 30, 2021. Under the interest rate swap agreement, the Company received the one-month USD-LIBOR subject to a 0.00% floor and paid a fixed rate of 1.02975% on a notional amount of $100.0 million. On August 2, 2022, the Company amended the interest rate swap to replace LIBOR as a reference rate for borrowings with Term SOFR. Under the amended interest rate swap agreement, the Company receives the one-month Term SOFR subject to a -0.1 floor and pays a fixed rate of 0.942% on a notional amount of $100.0 million. The swap matures on March 30, 2026. The Company elected the optional expedient in connection with amending its interest rate swap to replace the reference rate from LIBOR to Term SOFR to consider the amendment as a continuation of the existing contract without having to perform an assessment that would otherwise be required under U.S. GAAP. The Company formally documents the hedge relationships at hedge inception to ensure that its interest rate swaps qualify for hedge accounting. On a quarterly basis, the Company assesses whether the interest rate swap is highly effective in offsetting changes in the cash flow of the hedged item. The Company does not hold or issue interest rate swaps for trading purposes. The swaps are designated as cash flow hedges. For the third quarter and nine months ended September 24, 2023, a net gain of $0.3 million and a net loss of $0.2 million, respectively, was recorded in Accumulated Other Comprehensive Loss to recognize the effective portion of the fair value of the interest rate swap that qualifies as a cash flow hedge. ​ Designated Foreign Currency Hedges ​ The Company’s foreign subsidiaries transact most business, including certain intercompany transactions, in foreign currencies. Such transactions are principally purchases or sales of materials. The Company has exposure to a number of foreign currencies, including the Canadian dollar, the euro, and the Chinese yuan. The Company uses a layering methodology, whereby at the end of each quarter, the Company enters into forward exchange contracts hedging Canadian dollar to U.S. dollar, which hedge up to 85% of the forecasted intercompany purchase transactions between one of the Company’s Canadian subsidiaries and the Company’s U.S. operating subsidiaries for the next twelve months. The Company uses a similar layering methodology when entering into forward exchange contracts hedging U.S. dollar to the Chinese yuan, which hedge up to 60% of the forecasted intercompany sales transactions between one of the Company’s Chinese subsidiaries and one of the Company’s U.S. operating subsidiaries for the next twelve months. As of September 24, 2023, all designated foreign exchange hedge contracts were cash flow hedges under ASC 815, Derivatives and Hedging. The Company records the effective portion of the designated foreign currency hedge contracts in other comprehensive income until inventory turns and is sold to a third-party. Once the third-party transaction associated with the hedged forecasted transaction occurs, the effective portion of any related gain or loss on the designated foreign currency hedge is reclassified into earnings within cost of goods sold. In the event the notional amount of the derivatives exceeds the forecasted intercompany purchases for a given month, the excess hedge position will be attributed to the following month’s forecasted purchases. However, if the following month’s forecasted purchases cannot absorb the excess hedge position from the current month, the effective portion of the hedge recorded in other comprehensive income will be reclassified to earnings. ​ The notional amounts outstanding as of September 24, 2023 for the Canadian dollar to U.S. dollar contracts was $15.7 million. The fair value of the Company’s designated foreign hedge contracts outstanding as of September 24, 2023 was a liability of less than $0.1 million. As of September 24, 2023, the amount expected to be reclassified into cost of goods sold from other comprehensive income in the next twelve months is a loss of $0.1 million.

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- Definition The entire disclosure for financial instruments. This disclosure includes, but is not limited to, fair value measurements of short and long term marketable securities, international currencies forward contracts, and auction rate securities. Financial instruments may include hedging and non-hedging currency exchange instruments, derivatives, securitizations and securities available for sale at fair value. Also included are investment results, realized and unrealized gains and losses as well as impairments and risk management disclosures. + References No definition available. + Details
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- References No definition available. + Details
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