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DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES | 9 Months Ended
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Sep. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES | DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES We are exposed to market risk related to potential fluctuations in foreign currency exchange rates and interest rates. We use derivative financial instruments to mitigate the financial impact of exposure to these risks. Accounting for derivative financial instruments is governed by ASC Topic 815, Derivatives and Hedging, (“ASC 815”). In accordance with ASC 815, we record our derivative instruments at fair value as either assets or liabilities in the Consolidated Balance Sheets. Changes in the instruments’ fair value are accounted for based on their intended use. Gains and losses on derivatives that are designated and qualify for cash flow hedge accounting are recorded as a component of accumulated other comprehensive income (“AOCI”) and reclassified into earnings when the hedged transaction materializes. Gains and losses on derivatives that are designated and qualify for net investment hedge accounting are recorded as a component of AOCI and will not be reclassified into earnings until the investment is partially or completely liquidated. The changes in the fair value of derivatives not designated as hedging instruments and those which are no longer effective as hedging instruments, are recognized immediately in earnings. FOREIGN CURRENCY EXCHANGE AND OPTION CONTRACTS Our New Zealand subsidiary’s domestic sales and operating expenses are predominately denominated in New Zealand dollars, while its export sales, shareholder distributions and ocean freight payments are predominately denominated in U.S. dollars. To the extent New Zealand dollar costs exceed New Zealand dollar revenues (the “foreign exchange exposure”), the New Zealand subsidiary manages the foreign exchange exposure through the use of derivative financial instruments. It typically hedges a portion of export sales receipts to cover 50% to 90% of the projected foreign exchange exposure for the following 12 months, up to 75% for the forward 12 to 18 months and up to 50% for the forward 18 to 24 months. Additionally, it will occasionally hedge export sales receipts to cover up to 50% of the foreign exchange exposure for the forward 24 to 36 months and up to 25% of the foreign exchange exposure for the forward 36 to 48 months when the New Zealand dollar is at a cyclical low versus the U.S. dollar. The New Zealand subsidiary’s trading operations typically hedge a portion of export sales receipts to cover the projected foreign exchange exposure for the following three months. As of September 30, 2023, foreign currency exchange contracts and foreign currency option contracts had maturity dates through September 2026 and July 2026, respectively. Foreign currency exchange and option contracts hedging foreign currency risk qualify for cash flow hedge accounting. We may de-designate these cash flow hedge relationships in advance or at the occurrence of the forecasted transaction. The portion of gains or losses on the derivative instrument previously in AOCI for de-designated hedges remains in AOCI until the forecasted transaction affects earnings. Changes in the value of derivative instruments after de-designation are recorded in earnings. INTEREST RATE PRODUCTS We are exposed to cash flow interest rate risk on our variable-rate debt and on anticipated debt issuances. We use variable-to-fixed interest rate swaps and forward-starting interest rate swap agreements to hedge this exposure. For these derivative instruments, we report the gains/losses from the fluctuations in the fair market value of the hedges in AOCI and reclassify them to earnings as interest expense in the same period in which the hedged interest payments affect earnings. To the extent we de-designate or terminate a cash flow hedging relationship and the associated hedged item continues to exist, any unrealized gain or loss of the cash flow hedge at the time of de-designation remains in AOCI and is amortized using the straight-line method through interest expense over the remaining life of the hedged item. To the extent the associated hedged item is no longer effective, the gain or loss is reclassified out of AOCI to earnings immediately. INTEREST RATE SWAPS The following table contains information on the outstanding interest rate swaps as of September 30, 2023:
Outstanding Interest Rate Swaps (a)
Date Entered Into | Term | Notional Amount | Related Debt Facility | Fixed Rate of Swap | Bank Margin on Debt (b) | Total Effective Interest Rate (c)
August 2015 | 9 years | $170,000 |  | Term Credit Agreement | 2.10 | % | 1.70 | % | 3.80 | %
August 2015 | 9 years | 180,000 |  | Term Credit Agreement | 2.26 | % | 1.70 | % | 3.96 | %
April 2016 | 10 years | 100,000 |  | Incremental Term Loan | 1.50 | % | 1.75 | % | 3.25 | %
April 2016 | 10 years | 100,000 |  | Incremental Term Loan | 1.51 | % | 1.75 | % | 3.26 | %
May 2021 | 7 years | 200,000 |  | 2021 Incremental Term Loan Facility | 0.67 | % | 1.65 | % | 2.32 | %
December 2022 | 5 years | 100,000 |  | 2022 Incremental Term Loan Facility | 3.72 | % | 1.70 | % | 5.42 | %
(a)All interest rate swaps have been designated as interest rate cash flow hedges and qualify for hedge accounting. (b)Includes the SOFR Credit Spread Adjustment component of 0.1%. (c)Rate is before estimated patronage payments. FORWARD-STARTING INTEREST RATE SWAPS In March 2023, we modified our benchmark rates from LIBOR to Daily Simple SOFR for our forward-starting interest rates swaps, resulting in slightly favorable fixed rates. In May 2023, we entered into a new $50 million forward-starting interest rate swap, benchmarked to Daily Simple SOFR. The following table contains information on the outstanding forward-starting interest rate swaps as of September 30, 2023:
Outstanding Forward-Starting Interest Rate Swaps (a)
Date Entered Into | Term | Notional Amount | Fixed Rate of Swap | Related Debt Facility | Forward Date | Maximum Period Ending for Forecasted Issuance Date
April 2020 | 4 years | $100,000 |  | 0.78 | % | Term Credit Agreement | August 2024 | N/A
May 2020 | 4 years | 50,000 |  | 0.64 | % | Term Credit Agreement | August 2024 | N/A
May 2023 | 4 years | 50,000 |  | 3.29 | % | Term Credit Agreement | August 2024 | N/A
(a)All forward-starting interest rate swaps have been designated as interest rate cash flow hedges and qualify for hedge accounting. The following tables demonstrate the impact, gross of tax, of our derivatives on the Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2023 and 2022:
|  |  | Three Months Ended September 30,
| Income Statement Location |  | 2023 |  | 2022
Derivatives designated as cash flow hedges: |  |  |  |  |
Foreign currency exchange contracts | Other comprehensive income (loss) |  | $1,752 |  |  | ($4,464) |
| Other operating (expense) income, net |  | (1,796) |  |  | (2,669) |
Foreign currency option contracts | Other comprehensive income (loss) |  | (26) |  |  | (1,754) |
| Other operating (expense) income, net |  | (196) |  |  | — |
Interest rate products | Other comprehensive income (loss) |  | 12,381 |  |  | 26,607 |
| Interest expense, net |  | (4,810) |  |  | (62) |
|  |  | Nine Months Ended September 30,
| Income Statement Location |  | 2023 |  | 2022
Derivatives designated as cash flow hedges: |  |  |  |  |
Foreign currency exchange contracts | Other comprehensive income (loss) |  | $5,753 |  |  | ($15,373) |
| Other operating (expense) income, net |  | (5,801) |  |  | (2,598) |
Foreign currency option contracts | Other comprehensive income (loss) |  | (858) |  |  | (2,304) |
| Other operating (expense) income, net |  | (244) |  |  | — |
Interest rate products | Other comprehensive income (loss) |  | 20,416 |  |  | 76,372 |
| Interest expense, net |  | (12,587) |  |  | 4,555 |
During the next 12 months, the amount of the September 30, 2023 AOCI balance, net of tax, expected to be reclassified into earnings is a gain of approximate ly $24.7 million. The following table contains details of the expected reclassified amounts into earnings:
| Amount expected to be reclassified into earnings in next 12 months
Derivatives designated as cash flow hedges: |
Foreign currency exchange contracts | ($2,763) |
Foreign currency option contracts | (279) |
Interest rate products (a) | 27,734 |
Total estimated gain on derivatives contracts | $24,692 |
(a) These reclassified amounts are expected to fully offset variable interest rate payments made to debt holders, resulting in no net impact on our earnings or cash flows. The following table contains the notional amounts of the derivative financial instruments recorded in the Consolidated Balance Sheets:
| Notional Amount |
| September 30, 2023 |  | December 31, 2022 |
Derivatives designated as cash flow hedges: |  |  |  |
Foreign currency exchange contracts | $127,200 |  |  | $138,250 |  |
Foreign currency option contracts | 86,000 |  |  | 78,000 |  |
Interest rate swaps | 850,000 |  |  | 850,000 |  |
Forward-starting interest rate swaps | 200,000 |  |  | 150,000 |  |
The following table contains the fair values of the derivative financial instruments recorded in the Consolidated Balance Sheets at September 30, 2023 and December 31, 2022. Changes in balances of derivative financial instruments are recorded as operating activities in the Consolidated Statements of Cash Flows:
| Location on Balance Sheet |  | Fair Value Assets / (Liabilities) (a)
|  |  | September 30, 2023 |  | December 31, 2022
Derivatives designated as cash flow hedges: |  |  |  |
Foreign currency exchange contracts | Other current assets |  | $63 |  |  | $25 |
| Other assets |  | 391 |  |  | 1,303 |
| Other current liabilities |  | (3,900) |  |  | (5,457) |
| Other non-current liabilities |  | (1,139) |  |  | (410) |
Foreign currency option contracts | Other current assets |  | 77 |  |  | 66 |
| Other assets |  | 1,032 |  |  | 2,131 |
| Other current liabilities |  | (464) |  |  | (347) |
| Other non-current liabilities |  | (1,179) |  |  | (1,281) |
Interest rate swaps | Other assets |  | 62,520 |  |  | 60,843 |
| Other non-current liabilities |  | — |  |  | (51) |
Forward-starting interest rate swaps | Other assets |  | 17,501 |  |  | 11,939 |
Total derivative contracts: |  |  |  |  |
Other current assets |  |  | $140 |  |  | $91 |
Other assets |  |  | 81,444 |  |  | 76,216 |
Total derivative assets |  |  | $81,584 |  |  | $76,307 |
Other current liabilities |  |  | (4,364) |  |  | (5,804) |
Other non-current liabilities |  |  | (2,318) |  |  | (1,742) |
Total derivative liabilities |  |  | ($6,682) |  |  | ($7,546) |
(a) See Note 8 — Fair Value Measurements for further information on the fair value of our derivatives including their classification within the fair value hierarchy. OFFSETTING DERIVATIVES Derivative financial instruments are presented at their gross fair values in the Consolidated Balance Sheets. Our derivative financial instruments are not subject to master netting arrangements, which would allow the right of offset.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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