|12 Months Ended|
Dec. 31, 2022
|Derivative Instruments and Hedging Activities Disclosure [Abstract]|
|Financial Instruments||Financial Instruments
The Company operates globally with manufacturing and sales facilities around the world, and therefore, is subject to both financial and market risk. The Company utilizes normal operating and financing activities, along with derivative financial instruments, to minimize these risks.
Derivative Financial Instruments. The Company uses derivative financial instruments to manage its risks associated with movements in foreign currency exchange rates and interest rates. Derivative instruments are not used for trading or speculative purposes. The Company formally documents its hedge relationships, including identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. This process includes linking derivatives that are designated as hedges to specific forecasted transactions. The Company also assesses, both at the hedge’s inception and monthly thereafter, whether the derivatives used in hedging transactions are highly effective in offsetting the changes in the anticipated cash flows of the hedged item. If the hedging relationship ceases to be highly effective, or it becomes probable that a forecasted transaction is no longer expected to occur, the Company discontinues hedge accounting prospectively and immediately recognizes the gains and losses associated with those hedges. There were no material adjustments as a result of ineffectiveness to the results of operations for the years ended December 31, 2022, 2021 and 2020. The fair value of derivative financial instruments is determined through market-based valuations and may not be representative of the actual gains or losses that will be recorded when these instruments mature due to future fluctuations in the markets in which they are traded. The effects of derivative financial instruments are not expected to be material to the Company’s financial position or results of operations when considered together with the underlying exposure being hedged. Use of derivative financial instruments exposes the Company to credit-risk with its counterparties when the fair value of a derivative contract is an asset. The Company mitigates this risk by entering into derivative contracts with highly rated counterparties. The maximum amount of loss due to counterparty credit-risk is limited to the asset value of derivative financial instruments.
Cash Flow Hedges. The Company enters into certain derivative instruments that are designated and qualify as cash flow hedges. The Company executes both forward and option contracts, based on forecasted transactions, to manage foreign currency exchange exposure mainly related to inventory purchase and sales transactions.
A cash flow hedge requires that as changes in the fair value of derivatives occur, the portion of the change deemed to be effective is recorded temporarily in Accumulated other comprehensive loss and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. As of December 31, 2022, the term of derivative instruments hedging forecasted transactions ranged up to 21 months.
The following activity related to cash flow hedges was recorded in Accumulated other comprehensive loss as of December 31:
Other Hedging Activity. The Company has entered into certain foreign currency forward contracts that have not been designated as a hedge for accounting purposes. These contracts are used to manage foreign currency exposure related to changes in the value of assets or liabilities caused by changes in foreign exchange rates. The change in the fair value of the foreign currency derivative contract and the corresponding change in the fair value of the asset or liability of the Company are both recorded through earnings, each period as incurred.
Cross-Currency Swaps. The Company enters into cross-currency swaps to hedge Euro currency exposures of the net investment in certain foreign subsidiaries. The cross-currency swaps were designated as net investment hedges, with the amount of gain or loss associated with the change in fair value of these instruments deferred within Accumulated other comprehensive loss and recognized upon termination of the respective investment. During 2022, the company settled $450.0 million of cross-currency swap contracts resulting in a deferred gain of $42.5 million within Accumulated other comprehensive loss. As a result, there were no cross-currency swaps outstanding as of December 31, 2022. As of December 31, 2021, the notional value of cross-currency swap contracts outstanding was $200.0 million.
Commodity Price. The Company uses commodity swaps to hedge anticipated purchases of aluminum. As of December 31, 2022 and 2021, the notional value of commodity swap contracts outstanding was $24.1 million and $25.3 million, respectively. The amount of gain or loss associated with the change in fair value of these instruments is deferred in Accumulated other comprehensive loss and recognized in Cost of sales in the same period or periods during which the hedged transaction affects earnings. As of December 31, 2022, the Company estimates that during the next 12 months it will reclassify $1.9 million of net losses (based on current prices) from Accumulated other comprehensive loss to Cost of sales.
Foreign Currency Derivatives. The Company enters into forward and option contracts to manage foreign exchange exposure related to forecasted transactions and assets and liabilities that are subject to risk from foreign currency rate changes. These exposures include: product costs; revenues and expenses; associated receivables and payables; intercompany obligations and receivables and other related cash flows.
Forward exchange contracts outstanding as of December 31, 2022 and December 31, 2021 had notional contract values of $684.8 million and $519.8 million, respectively. There were no option contracts outstanding as of December 31, 2022 or December 31, 2021. The forward contracts outstanding as of December 31, 2022 mature during 2023 and 2024 and mainly relate to the Euro, Australian dollar, Japanese yen and Canadian dollar. As of December 31, 2022, the Company estimates that, during the next 12 months, it will reclassify approximately $18.2 million of net gains (based on rates as of December 31, 2022) from Accumulated other comprehensive loss to Cost of sales.
Interest-Rate Derivatives. During 2021, the Company entered into forward-starting interest-rate swaps to hedge the interest-rate risk associated with anticipated debt issuances. On August 4, 2021, the company settled these interest-rate swaps, resulting in a net deferred loss of $1.6 million. As a result, there were no forward-starting interest-rate swaps outstanding as of December 31, 2022 or December 31, 2021.
During 2022, the Company entered into and settled a series of treasury-lock swaps to hedge the interest-rate risk associated with debt issuances, resulting in a net deferred gain of $5.1 million. As a result, there were no treasury-lock swaps outstanding as of December 31, 2022 or December 31, 2021.
The Company had net deferred gains (losses) associated with the forward-starting interest-rate swaps and treasury-lock swaps discussed above of $3.2 million and $(2.4) million, as of December 31, 2022 and December 31, 2021, respectively. These instruments were designated as cash flow hedges with gains and losses included in Accumulated other comprehensive loss. As of December 31, 2022, the Company estimates that during the next 12 months, it will reclassify approximately $0.1 million of net losses resulting from Accumulated other comprehensive loss to Interest expense.
As of December 31, 2022 and December 31, 2021, the fair values of the Company’s derivative instruments were:
As of December 31, 2022 and December 31, 2021, asset derivatives are included within Prepaid expenses and other and Other long-term assets, and liability derivatives are included within Accrued expenses in the Consolidated Balance Sheets.
The effect of derivative instruments on the Consolidated Statements of Operations for the years ended December 31, 2022 and December 31, 2021 is as shown in the tables below.
The amount of gain (loss) on derivatives recognized in Accumulated other comprehensive loss was as follows:
The amount of gain (loss) reclassified from Accumulated other comprehensive loss into earnings was as follows:
Fair Value of Other Financial Instruments. The carrying values of the Company’s short-term financial instruments, including cash and cash equivalents and accounts and notes receivable, approximate their fair values because of the short maturity of these instruments. As of December 31, 2022 and December 31, 2021, the fair value of the Company’s long-term debt was approximately $2,225.0 million and $1,914.7 million, respectively, and was determined using Level 1 and Level 2 inputs described in Note 6 – Fair Value Measurements, including quoted market prices or discounted cash flows based on quoted market rates for similar types of debt. The carrying value of long-term debt, including current maturities, was $2,540.5 million and $1,843.1 million as of December 31, 2022 and December 31, 2021, respectively.
No definition available.
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.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef