| Derivative Instruments and Hedging Activities |
Derivative Instruments and Hedging Activities Our risk management and derivative accounting policies are presented within Part II.—Item 8. Financial Statements, Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" and Note 10, "Derivative Instruments and Hedging Activities" in our Annual Report and did not significantly change during the nine months ended September 30, 2023. As noted in Part II. - Item 8. Financial Statements, Note 10, "Derivative Instruments and Hedging Activities" in our Annual Report, due to the nature of our counterparty agreements, and the fact that we are not subject to master netting arrangements, we are not able to net positions with the same counterparty and, therefore, present our derivative positions on a gross basis in our unaudited condensed consolidated balance sheets. Except as noted below, our significant derivative positions have not changed considerably since December 31, 2022. Forward Starting Interest Rate Swaps In late April 2022, the forward starting interest rate swaps associated with the $500 million 3.5% notes that we repaid upon maturity on May 1, 2022 were terminated and settled. The immaterial loss on settlement of the swaps was recorded through interest expense during the second quarter of 2022. Foreign Currency Forwards In the second quarter of 2023, we entered into approximately CAD 260 million (approximately 195 million USD) of foreign exchange forward contracts to manage our exposure to foreign currency fluctuations related to the repayment of our CAD 500 million 2.84% notes that matured on July 15, 2023. These contracts were not designated in hedge accounting relationships; as such, changes in the fair value were recorded in other non-operating income (expense), net in the unaudited condensed consolidated statements of operations. These contracts settled on July 12, 2023 in advance of the notes repayment for an immaterial amount. Derivative Fair Value Measurements We utilize market approaches to estimate the fair value of our derivative instruments by discounting anticipated future cash flows derived from the derivative's contractual terms and observable market interest, foreign exchange and commodity rates. The fair values of our derivatives also include credit risk adjustments to account for our counterparties' credit risk, as well as our own non-performance risk, as appropriate. The table below summarizes our derivative assets and liabilities that were measured at fair value as of September 30, 2023 and December 31, 2022. | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fair value measurements as of September 30, 2023 | | | As of September 30, 2023 | | Quoted prices in
active markets
(Level 1) | | Significant other
observable inputs
(Level 2) | | Significant
unobservable
inputs (Level 3) | | | (In millions) | | | | | | | | | | Forward starting interest rate swaps | $ | 91.9 | | | $ | — | | | $ | 91.9 | | | $ | — | | | Foreign currency forwards | 5.0 | | | — | | | 5.0 | | | — | | | Commodity swaps and options | (12.9) | | | — | | | (12.9) | | | — | | | | | | | | | | | Total | $ | 84.0 | | | $ | — | | | $ | 84.0 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Fair value measurements as of December 31, 2022 | | | As of December 31, 2022 | | Quoted prices in
active markets
(Level 1) | | Significant other
observable inputs
(Level 2) | | Significant
unobservable
inputs (Level 3) | | | (In millions) | | | | | | | | | | Forward starting interest rate swaps | $ | 40.0 | | | $ | — | | | $ | 40.0 | | | $ | — | | | Foreign currency forwards | 7.6 | | | — | | | 7.6 | | | — | | | Commodity swaps and options | 69.0 | | | — | | | 69.0 | | | — | | | | | | | | | | | Total | $ | 116.6 | | | $ | — | | | $ | 116.6 | | | $ | — | |
As of September 30, 2023 and December 31, 2022, we had no significant transfers between Level 1 and Level 2. New derivative contracts transacted during the nine months ended September 30, 2023 were all included in Level 2. Results of Period Derivative Activity The tables below include the results of our derivative activity in our unaudited condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022, and our unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2023 and September 30, 2022. Fair Value of Derivative Instruments in the Unaudited Condensed Consolidated Balance Sheets (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of September 30, 2023 | | | | | Derivative Assets | | Derivative Liabilities | | | Notional amount | | Balance sheet location | | Fair value | | Balance sheet location | | Fair value | | Derivatives designated as hedging instruments | | Forward starting interest rate swaps | $ | 1,000.0 | | | Other non-current assets | | $ | 91.9 | | | Other liabilities | | $ | — | | | Foreign currency forwards | $ | 215.5 | | | Other current assets | | 3.9 | | | Accounts payable and other current liabilities | | — | | | | | Other non-current assets | | 1.1 | | | Other liabilities | | — | | | Total derivatives designated as hedging instruments | | $ | 96.9 | | | | | $ | — | | | Derivatives not designated as hedging instruments | Commodity swaps(1) | $ | 608.4 | | | Other current assets | | $ | 24.1 | | | Accounts payable and other current liabilities | | $ | (37.3) | |
| | | Other non-current assets | | 5.8 | | | Other liabilities | | (5.5) | | | | | | | | | | | | | | | | | | | | | | | Total derivatives not designated as hedging instruments | | $ | 29.9 | | | | | $ | (42.8) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of December 31, 2022 | | | | | Derivative Assets | | Derivative Liabilities | | | Notional amount | | Balance sheet location | | Fair value | | Balance sheet location | | Fair value | | Derivatives designated as hedging instruments | | | | | | | | Forward starting interest rate swaps | $ | 1,000.0 | | | Other non-current assets | | $ | 40.0 | | | Other liabilities | | $ | — | | | Foreign currency forwards | $ | 176.6 | | | Other current assets | | 6.2 | | | Accounts payable and other current liabilities | | (0.1) | | | | | Other non-current assets | | 1.6 | | | Other liabilities | | (0.1) | | | Total derivatives designated as hedging instruments | | | | $ | 47.8 | | | | | $ | (0.2) | | | Derivatives not designated as hedging instruments | | | | | | | Commodity swaps(1) | $ | 525.2 | | | Other current assets | | $ | 86.1 | | | Accounts payable and other current liabilities | | $ | (14.1) | | | | | Other non-current assets | | 7.4 | | | Other liabilities | | (10.4) | | Commodity options(1) | $ | 19.7 | | | Other current assets | | 0.8 | | | Accounts payable and other current liabilities | | (0.8) | | | Total derivatives not designated as hedging instruments | | $ | 94.3 | | | | | $ | (25.3) | |
(1)Notional includes offsetting buy and sell positions, shown in terms of absolute value. Buy and sell positions are shown gross in the asset and/or liability position, as appropriate. The Pretax Effect of Cash Flow Hedge Accounting on Other Comprehensive Income (Loss), Accumulated Other Comprehensive Income (Loss) and Income (Loss) (in millions): | | | | | | | | | | | | | | | | | | | | | | Derivatives in cash flow hedge relationships | | Amount of gain
(loss) recognized
in OCI on derivatives | | Location of gain (loss)
reclassified from AOCI into
income | | Amount of gain
(loss) recognized
from AOCI into income on
derivative | | Three Months Ended September 30, 2023 | | | | | | | | Forward starting interest rate swaps | | $ | 62.6 | | | Interest income (expense), net | | $ | (0.8) | | | Foreign currency forwards | | 5.1 | | | Cost of goods sold | | 1.1 | | | | | | Other non-operating income (expense), net | | (0.3) | | | Total | | $ | 67.7 | | | | | $ | — | | | Three Months Ended September 30, 2022 | | | | | | | | Forward starting interest rate swaps | | $ | 28.4 | | | Interest income (expense), net | | $ | (1.0) | | | Foreign currency forwards | | 10.9 | | | Cost of goods sold | | 0.5 | | | | | | Other non-operating income (expense), net | | (0.2) | | | Total | | $ | 39.3 | | | | | $ | (0.7) | |
| | | | | | | | | | | | | | | | | | | | | | Derivatives in cash flow hedge relationships | | Amount of gain
(loss) recognized
in OCI on derivatives | | Location of gain (loss)
reclassified from AOCI into
income | | Amount of gain
(loss) recognized
from AOCI into income on
derivative | | Nine Months Ended September 30, 2023 | | | | | | | | Forward starting interest rate swaps | | $ | 51.9 | | | Interest income (expense), net | | $ | (4.3) | | | Foreign currency forwards | | 0.3 | | | Cost of goods sold | | 3.8 | | | | | | Other non-operating income (expense), net | | (0.8) | | | Total | | $ | 52.2 | | | | | $ | (1.3) | | | Nine Months Ended September 30, 2022 | | | | | | | | Forward starting interest rate swaps | | $ | 196.2 | | | Interest income (expense), net | | $ | (13.3) | | | Foreign currency forwards | | 14.6 | | | Cost of goods sold | | 0.2 | | | | | | Other non-operating income (expense), net | | (0.1) | | | Total | | $ | 210.8 | | | | | $ | (13.2) | |
The Pretax Effect of Net Investment Hedge Accounting on Other Comprehensive Income (Loss), Accumulated Other Comprehensive Income (Loss) and Income (Loss) (in millions): | | | | | | | | | | | | | | | | | | | | | | Net investment hedge relationships | | Amount of gain
(loss) recognized
in OCI | | Location of gain (loss) recognized in income (amount excluded from effectiveness testing) | | Amount of gain (loss) recognized in income (amount excluded from effectiveness testing) (1) | | Three Months Ended September 30, 2023 | | | | | | | | | | | | | | EUR 800 million notes due 2024 | | 27.0 | | | Other non-operating income (expense), net | | — | | | Total | | $ | 27.0 | | | | | $ | — | | | Three Months Ended September 30, 2022 | | | | | | | | | | | | | | EUR 800 million notes due 2024 | | 54.5 | | | Other non-operating income (expense), net | | — | | | Total | | $ | 54.5 | | | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | Net investment hedge relationships | | Amount of gain
(loss) recognized
in OCI | | Location of gain (loss) recognized in income (amount excluded from effectiveness testing) | | Amount of gain (loss) recognized in income (amount excluded from effectiveness testing)(1) | | Nine Months Ended September 30, 2023 | | | | | | | | | | | | | | EUR 800 million notes due 2024 | | 10.7 | | | Other non-operating income (expense), net | | — | | | Total | | $ | 10.7 | | | | | $ | — | | | Nine Months Ended September 30, 2022 | | | | | | | | | | | | | | EUR 800 million notes due 2024 | | 125.4 | | | Other non-operating income (expense), net | | — | | | Total | | $ | 125.4 | | | | | $ | — | |
(1)Represents amounts excluded from the assessment of effectiveness for which the difference between changes in fair value and period amortization is recorded in other comprehensive income. The cumulative translation adjustments related to our net investment hedges remain in AOCI until the respective underlying net investment is sold or liquidated. During the three and nine months ended September 30, 2023 and September 30, 2022, respectively, we did not reclassify any amounts related to net investment hedges from AOCI into earnings. As of September 30, 2023, we expect net gains of approximately $1 million (pretax) recorded in AOCI will be reclassified into earnings within the next 12 months. For derivatives designated in cash flow hedge relationships, the maximum length of time over which forecasted transactions are hedged as of September 30, 2023 is approximately 3 years, as well as those related to our remaining forecasted debt issuances in 2026. The Effect of Derivatives Not Designated as Hedging Instruments on the Unaudited Condensed Consolidated Statements of Operations (in millions): | | | | | | | | | | | | | | | | Derivatives not in hedging relationships | | Location of gain (loss) recognized in
income on derivative | | Amount of gain (loss) recognized in
income on derivative | | Three Months Ended September 30, 2023 | | | | | | Commodity swaps | | Cost of goods sold | | 35.6 | | | | | | | | Foreign currency forwards | | Other non-operating income (expense), net | | 0.8 | | | Total | | | | $ | 36.4 | | | Three Months Ended September 30, 2022 | | | | | | Commodity swaps | | Cost of goods sold | | (42.2) | | | | | | | | Total | | | | $ | (42.2) | |
| | | | | | | | | | | | | | | | Derivatives not in hedging relationships | | Location of gain (loss) recognized in
income on derivative | | Amount of gain (loss) recognized in
income on derivative | | Nine Months Ended September 30, 2023 | | | | | | Commodity swaps | | Cost of goods sold | | (44.0) | | | | | | | | Foreign currency forwards | | Other non-operating income (expense), net | | 2.7 | | | Total | | | | $ | (41.3) | | | Nine Months Ended September 30, 2022 | | | | | | Commodity swaps | | Cost of goods sold | | 33.0 | | | | | | | | Total | | | | $ | 33.0 | | | | | | |
|