v3.25.1
Derivative Instruments
3 Months Ended
Mar. 31, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments Derivative Instruments
The Company utilizes certain derivative instruments to enhance its ability to manage currency exposure as well as raw materials price risk. Derivative instruments are entered into for periods consistent with the related underlying exposures and do not constitute positions independent of those exposures. The Company does not enter into contracts for speculative purposes. The contracts are executed with major financial institutions with no credit loss anticipated for failure of the counterparties to perform.
Cash Flow Hedges
With the exception of its net investment hedges, the Company designates all of its hedging instruments that qualify for hedge accounting in accordance with ASC 815 as cash flow hedges. For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), gains or losses on the derivative instrument are reported as a component of other comprehensive loss, net of tax, and are reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings.
Foreign Currency Forward Contracts
The Company is exposed to foreign currency exchange risk as a result of transactions in currencies other than the functional currency of certain subsidiaries. The Company utilizes foreign currency forward purchase and sale contracts to manage the volatility associated with foreign currency purchases, sales and certain intercompany transactions in the normal course of business. Principal currencies for which the Company utilizes foreign currency forward contracts from time to time include the British pound, Canadian dollar, Euro and Mexican peso.
Gains and losses on these instruments are recorded in accumulated other comprehensive loss, net of tax, until the underlying transaction is recorded in earnings. When the hedged item is realized, gains or losses are reclassified from accumulated other comprehensive loss to the condensed consolidated statement of earnings. The assessment of effectiveness for forward contracts is based on changes in the forward rates. These hedges have been determined to be effective. The majority of the amounts in accumulated other comprehensive loss for cash flow hedges are expected to be reclassified into earnings within one year.
The combined fair value of the foreign currency forward contracts was an asset balance of $0.1 million as of March 31, 2025 which was recorded in Other current assets within the condensed consolidated balance sheet. The combined fair value of the foreign currency forward contracts was a liability balance of $1.4 million as of December 31, 2024 which was recorded in Accrued liabilities within the condensed consolidated balance sheet.
The following table summarizes, by currency, the contractual amounts of the Company’s foreign currency forward contracts as of the dates indicated that were designated as cash flow hedges:
(dollars in millions)March 31, 2025December 31, 2024
BuySellBuySell
Canadian dollar$— $21.7 $— $28.9 
Euro10.5 — 14.0 — 
Mexican peso19.4 — 27.2 — 
Total$29.9 $21.7 $41.2 $28.9 
Interest Rate Swaps
The Company is exposed to interest rate risk as a result of the Company’s floating rate borrowings. The Company entered into a forward interest rate swap agreement with an independent counterparty to hedge the variability in cash flows due to changes in Secured Overnight Financing Rate (SOFR) benchmark interest rate associated with variable rate borrowings. An interest rate swap at March 31, 2025 has a maturity date of September 30, 2029 and effectively converts the Company’s variable interest rate obligation to a fixed interest rate obligation. The interest rate swap had an aggregate notional amount of 4.2 billion rupees outstanding as of March 31, 2025 and December 31, 2024. The aggregate effective interest rate of the swap as of March 31, 2025 was 8.25%.
The fair value of the interest rate swap contract was a liability balance of $0.8 million and $0.5 million as of March 31, 2025 and December 31, 2024, respectively, which was recorded in Accrued liabilities within the condensed consolidated balance sheet.
The effect of cash flow hedges on the condensed consolidated statement of earnings:
Three Months Ended March 31 (dollars in millions):
Derivatives in ASC 815 cash flow hedging relationshipsAmount of gain (loss) recognized in other
comprehensive
loss on derivatives
Location of (loss) gain
reclassified from
accumulated other
comprehensive loss
into earnings
Amount of (loss) gain
reclassified from
accumulated other
comprehensive
loss into earnings
2025202420252024
Foreign currency contracts$1.3 $1.8 Cost of products sold$(0.2)$0.6 
Interest rate swap(0.3)— Interest expense— — 
$1.0 $1.8 $(0.2)$0.6 
Net Investment Hedges
The Company uses foreign currency denominated intercompany debt and third-party foreign currency forward contracts to hedge the exposure to a portion of the Company’s net investments in certain non-U.S. subsidiaries against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S. dollar. For the derivative instruments that are designated and qualify as net investment hedges, gains and losses are reported in other comprehensive loss where they offset gains and losses recorded on the Company’s net investments in its non-U.S. subsidiaries. These hedges are determined to be effective. The Company recognized $(1.2) million of after tax losses and $4.0 million of after-tax gains associated with hedges of net investments in non-U.S. subsidiaries in currency translation adjustment in other comprehensive loss in the three months ended March 31, 2025 and March 31, 2024, respectively.
The contractual amount of the Company’s foreign currency denominated intercompany debt that is designated as a net investment hedge was ¥1.5 billion RMB as of March 31, 2025 and December 31, 2024. The fair value of the net investment hedge was zero as of March 31, 2025 and December 31, 2024.
Balance Sheet Hedges
Foreign Exchange Contracts
The Company periodically enters into foreign exchange contracts to mitigate the foreign currency volatility relative to certain intercompany loans. These foreign exchange contracts did not qualify for hedge accounting in accordance with ASC 815 and as such were marked to market through earnings. The fair value of the foreign exchange contracts was zero as of March 31, 2025 and December 31, 2024.
The following table summarizes the contractual amounts of the Company's foreign exchange contracts that are designated as balance sheet hedges:
(dollars in millions)March 31, 2025December 31, 2024
BuySellBuySell
Canadian dollar$— $— $— $6.4 
The amounts recognized within the condensed consolidated statements of earnings related to the Company's foreign exchange contracts are set forth below.
Three Months Ended March 31 (dollars in millions):
Derivatives not designated as hedging instruments:
Location of expense within the condensed consolidated statements of earnings
20252024
Foreign exchange contractsOther expense, net$— $4.0