Derivatives and Hedging Activity

9 Months Ended

Sep. 30, 2021

Derivative Instruments And Hedging Activities Disclosure [Abstract]

13. Derivatives and Hedging Activity

We are exposed to market risks, including changes in foreign currency exchange rates and interest rates. To manage the risk related to these exposures, we enter into various derivative instruments that reduce these risks by creating offsetting exposures. We generally do not enter into derivative transactions for trading or speculative purposes.

Foreign Exchange Risk Management

We are exposed to foreign exchange risk when we earn revenues, pay expenses, or enter into monetary intercompany transfers denominated in a currency that differs from our functional currency, or other transactions that are denominated in a currency other

than our functional currency. We use foreign exchange derivatives, typically forward contracts and options, to reduce our overall exposure to the effects of currency fluctuations on cash flows. These exposures are hedged, on average, for less than three years.

Interest Rate Risk Management

We enter into various long-term debt agreements. We use interest rate derivatives, typically swaps, to reduce our exposure to the effects of interest rate fluctuations on the forecasted interest rates for up to three years into the future.

We have not received or pledged any collateral related to derivative arrangements at September 30, 2021.

The notional and fair values of derivatives designated as hedging instruments are as follows at September 30, 2021 and December 31, 2020 (in millions):

			Derivative Assets			Derivative Liabilities
	Notional		Balance Sheet	Fair		Balance Sheet	Fair
Instrument	Amount		Classification	Value		Classification	Value
At September 30, 2021
Interest rate contracts	$	1,000.0	Other current assets	$	5.9	Accrued compensation and other current liabilities	$	0.3
			Other noncurrent assets		5.9	Other noncurrent liabilities		4.2
Foreign exchange contracts (1)		22.5	Other current assets		4.5	Accrued compensation and other current liabilities		0.9
			Other noncurrent assets		1.9	Other noncurrent liabilities		4.4
Total	$	1,022.5		$	18.2		$	9.8
At December 31, 2020
Interest rate contracts	$	550.0	Other current assets	$	—	Accrued compensation and other current liabilities	$	54.5
			Other noncurrent assets		—	Other noncurrent liabilities		10.9
Foreign exchange contracts (1)		48.6	Other current assets		5.9	Accrued compensation and other current liabilities		0.6
			Other noncurrent assets		7.8	Other noncurrent liabilities		3.3
Total	$	598.6		$	13.7		$	69.3

(1)

Included within foreign exchange contracts at September 30, 2021 were $365.8 million of call options, offset with $365.8 million of put options, and $12.1 million of buy forwards, offset with $34.6 million of sell forwards. Included within foreign exchange contracts at December 31, 2020 were $354.7 million of call options, offset with $354.7 million of put options, and $9.0 million of buy forwards, offset with $57.6 million of sell forwards.

The effect of cash flow hedge accounting on accumulated other comprehensive loss for the three and nine-month periods ended September 30, 2021 and 2020 were as follows (in millions):

							Amount of
				Amount of			Gain (Loss)
				Loss			Recognized
	Amount of			Reclassified			in Earnings
	Gain (Loss)			from			Related to
	Recognized in			Accumulated			Amount
	Accumulated			Other			Excluded
	Other			Comprehensive			from
	Comprehensive			Loss into			Effectiveness			Statement of Earnings
Instrument	Loss (1)			Earnings			Testing			Classification
Three-month period ended September 30, 2021
Interest rate contracts	$	11.2		$	(0.3	)	$	—		Interest expense
Foreign exchange contracts		(5.6	)		(0.4	)		0.2		Commission revenue
					(0.1	)		0.2		Compensation expense
					(0.2	)		0.1		Operating expense
Total	$	5.6		$	(1.0	)	$	0.5
Three-month period ended September 30, 2020
Interest rate contracts	$	3.4		$	(0.3	)	$	—		Interest expense
Foreign exchange contracts		7.0			(0.4	)		(0.1	)	Commission revenue
					(0.4	)		0.4		Compensation expense
					(0.3	)		0.4		Operating expense
Total	$	10.4		$	(1.4	)	$	0.7

Nine-month period ended September 30, 2021
Interest rate contracts	$	45.3		$	(0.9	)	$	—		Interest expense
Foreign exchange contracts		(11.7	)		(2.7	)		—		Commission revenue
					(0.6	)		0.8		Compensation expense
					(0.5	)		0.6		Operating expense
Total	$	33.6		$	(4.7	)	$	1.4
Nine-month period ended September 30, 2020
Interest rate contracts	$	(104.7	)	$	(0.9	)	$	—		Interest expense
Foreign exchange contracts		(10.3	)		(0.9	)		(0.4	)	Commission revenue
					(1.2	)		1.0		Compensation expense
					(0.9	)		0.8		Operating expense
Total	$	(115.0	)	$	(3.9	)	$	1.4

(1)

For the three and nine-month periods ended September 30, 2021, the amount excluded from the assessment of hedge effectiveness for our foreign exchange contracts recognized in accumulated other comprehensive loss was a loss of zero and $1.2 million, respectively. For the three and nine-month periods ended September 30, 2020, the amount excluded from the assessment of hedge effectiveness for our foreign exchange contracts recognized in accumulated other comprehensive loss was a loss of $0.4 million and $0.8 million, respectively.

We estimate that approximately $8.1 million of pretax loss currently included within accumulated other comprehensive loss will be reclassified into earnings in the next twelve months.