Derivative Instruments

3 Months Ended

Sep. 30, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company enters into derivative instrument agreements, including forward foreign currency exchange contracts, interest rate swaps, and cross currency swaps to manage risk in connection with changes in foreign currency and interest rates. The Company hedges committed exposures and does not engage in speculative transactions. The Company only enters into derivative instrument agreements with counterparties who have highly rated credit.

Beginning in March 2022, the Company entered into a forward foreign currency contract expiring in March 2029 to hedge its exposure to adverse foreign currency exchange rate movements for its operations in Europe and elected the spot method for designating this contract as a net investment hedge with the excluded forward point amortized to interest expense. During May 2022, the Company settled the March 2022 forward foreign currency contract for $3.9 million in cash, which included $0.4 million in recognized forward points, terminated the hedge accounting treatment and simultaneously entered into a new forward foreign currency contract expiring in March 2029 with the same notional amount at a new forward rate. The Company also elected the spot method for designating the May 2022 contract as a net investment hedge. The $3.5 million gain recognized on the March 2022 contract excluding recognized forward points is deferred in OCI and will remain in OCI until either the sale or substantially complete liquidation of the hedged subsidiaries.

Beginning in March 2022, the Company also converted a Euro-denominated ("EUR"), fixed rate obligation into a U.S. Dollar fixed rate obligation using a receive fixed, pay fixed cross currency swap, which was designated as a cash flow hedge. During May 2022, the Company settled the March 2022 cross currency swap for $22.4 million in cash, which was comprised of $21.3 million gain on the swap excluding accrued interest and $1.1 million of net interest income accrued according to the terms of the swap. The Company terminated the hedge accounting treatment and simultaneously entered into a new cross currency swap expiring in March 2029 with a lower notional amount for the US dollar denominated leg at a new US dollar interest rate. An amount of $28.3 million was reclassified out of OCI into earnings to offset the currency loss on the underlying security being hedged resulting in a net $7.0 million hedge accounting reserve balance within OCI, which is being amortized to interest expense in the Condensed Consolidated Statement of Earnings and Comprehensive Income through the termination of the underlying hedged intercompany debt in March 2029.

In addition, the Company has converted its domestic U.S. variable rate debt to fixed rate debt using a receive variable, pay fixed interest rate swap expiring March 2027. The interest rate swap contract is also designated as a cash flow hedge.

As of September 30, 2022, the aggregate notional amount of the Company's outstanding interest rate contracts, cross currency swap contracts and forward contract were $688.8 million, $460.0 million and $321.7 million, respectively. As of September 30, 2021, the aggregate notional amount of the Company's outstanding forward contracts used to hedge variability in cash flows on its Chinese Yuan denominated purchases were $2.0 million, all of which expired by December 31, 2021. As of September 30, 2022 there were no outstanding forward contracts on its Chinese Yuan denominated purchases.

Changes in fair value of any forward contracts that are determined to be ineffective are immediately reclassified from OCI into earnings. There were no amounts recognized due to ineffectiveness during the nine-months ended September 30, 2022.

The effects of fair value and cash flow hedge accounting on the Condensed Consolidated Statement of Earnings and Comprehensive Income for the periods ended September 30, were as follows:



				2022						2021
(in thousands)				Cost of sales		Interest expense, net		Other & foreign exchange loss, net		Cost of sales
Total amounts of income and expense line items presented in the Condensed Consolidated Statement of Earnings in which the effects of fair value or cash flow hedges are recorded				$	899,828	$	(2,983)	$	(3,814)	$	597,901
The effects of fair value and cash flow hedging
	Gain or (loss) on cash flow hedging relationships
		Interest contracts:
			Amount of gain or (loss) reclassified from OCI to earnings			(3,315)
		Cross currency swap contract
			Amount of gain or (loss) reclassified from OCI to earnings			(4,020)		57,560
		Forward contract
			Amount of gain or (loss) reclassified from OCI to earnings	163						207

The effects of derivative instruments on the Condensed Consolidated Statement of Earnings and Comprehensive Income for the three months ended September 30, 2022 and 2021 were as follows:


Cash Flow Hedging Relationships	Gain (Loss) Recognized in OCI				Location of Gain (Loss) Reclassified from OCI into Earnings	Gain (Loss) Reclassified from OCI into Earnings
(in thousands)	2022		2021			2022		2021
Interest rate contracts	$	18,696	$	—	Interest expense	$	(337)	$	—
Cross currency contracts	23,977		—		Interest expense	(5,979)		—
					FX gain (loss)	28,437		—
Forward contracts	$	—	$	207	Cost of goods sold	—		228
Total	$	42,673	$	207		$	22,121	$	228

The effects of derivative instruments on the Condensed Consolidated Statement of Earnings and Comprehensive Income for the nine months ended September 30, 2022 and 2021were as follows:


Cash Flow Hedging Relationships	Gain (Loss) Recognized in OCI				Location of Gain (Loss) Reclassified from OCI into Earnings	Gain (Loss) Reclassified from OCI into Earnings
	2022		2021			2022		2021
Interest rate contracts	$	25,571	$	—	Interest expense	$	(3,315)	$	—
Cross currency contracts	46,692		—		Interest expense	(4,020)		—
					FX gain (loss)	57,560		—
Forward contracts	—		207		Cost of goods sold	163		428
Total	$	72,263	$	207		$	50,388	$	428

For the three and nine months ending September 30, 2022, gains on the net investment hedge of $16.9 million and $28.2 million were included in OCI, respectively. For the three and nine months ending September 30, 2022, excluded gains of $1.3 million and $2.4 million, respectively, were reclassified from OCI to interest expense.

As of September 30, 2022, the aggregate fair values of the Company’s derivative instruments were comprised of an asset of $82.1 million, of which $19.9 million is included in other current assets on the condensed consolidated balance sheet, and the balance, or $62.2 million as an Other non-current assets on the condensed consolidated balance sheet.