Derivatives and Hedging Activity

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

11. 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, 2023.

The notional and fair values of derivatives designated as hedging instruments are as follows at September 30, 2023 and December 31, 2022 (in millions):


			Derivative Assets			Derivative Liabilities
	Notional		Balance Sheet	Fair		Balance Sheet	Fair
Instrument	Amount		Classification	Value		Classification	Value
At September 30, 2023
Interest rate contracts	$	900.0	Other current assets	$	88.5	Accrued compensation and other current liabilities	$	—
			Other noncurrent assets		29.6	Other noncurrent liabilities		—
Foreign exchange contracts (1)		78.2	Other current assets		1.2	Accrued compensation and other current liabilities		11.2
			Other noncurrent assets		10.4	Other noncurrent liabilities		11.2
Total	$	978.2		$	129.7		$	22.4
At December 31, 2022
Interest rate contracts	$	950.0	Other current assets	$	56.5	Accrued compensation and other current liabilities	$	—
			Other noncurrent assets		56.6	Other noncurrent liabilities		—
Foreign exchange contracts (1)		113.0	Other current assets		0.8	Accrued compensation and other current liabilities		18.5
			Other noncurrent assets		14.5	Other noncurrent liabilities		27.0
Total	$	1,063.0		$	128.4		$	45.5

(1)

Included within foreign exchange contracts at September 30, 2023 were $883.2 million of call options, offset with $883.2 million of put options, and $6.9 million of buy forwards, offset with $85.2 million of sell forwards. Included within foreign exchange contracts at December 31, 2022 were $948.8 million of call options, offset with $948.8 million of put options, and $12.4 million of buy forwards, offset with $125.4 million of sell forwards.

The effect of cash flow hedge accounting on accumulated other comprehensive loss for the nine-month periods ended September 30, 2023 and 2022 were as follows (in millions):


							Amount of
				Amount of			Gain
				Gain (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, 2023
Interest rate contracts	$	56.2		$	(0.3	)	$	—		Interest expense
Foreign exchange contracts		(11.3	)		0.1			(0.1	)	Commission revenue
					(0.4	)		0.4		Compensation expense
					(0.3	)		0.3		Operating expense
Total	$	44.9		$	(0.9	)	$	0.6
Three-month period ended September 30, 2022
Interest rate contracts	$	45.5		$	(0.2	)	$	—		Interest expense
Foreign exchange contracts		(71.8	)		2.9			—		Commission revenue
					(0.4	)		0.5		Compensation expense
					(0.3	)		0.4		Operating expense
Total	$	(26.3	)	$	2.0		$	0.9

Nine-month period ended September 30, 2023
Interest rate contracts	$	65.0		$	(0.9	)	$	—		Interest expense
Foreign exchange contracts		17.4			0.9			(0.1	)	Commission revenue
					(1.4	)		1.4		Compensation expense
					(1.0	)		1.0		Operating expense
Total	$	82.4		$	(2.4	)	$	2.3
Nine-month period ended September 30, 2022
Interest rate contracts	$	181.0		$	(0.8	)	$	—		Interest expense
Foreign exchange contracts		(110.0	)		2.7			—		Commission revenue
					(0.6	)		1.3		Compensation expense
					(0.5	)		1.0		Operating expense
Total	$	71.0		$	0.8		$	2.3

(1)

For the three and nine-month periods ended September 30, 2023, the amount excluded from the assessment of hedge effectiveness for our foreign exchange contracts recognized in accumulated other comprehensive loss was a loss of $0.1 million and a gain of $0.7 million, respectively. For the three and nine-month periods ended September 30, 2022, the amount excluded from the assessment of hedge effectiveness for our foreign exchange contracts recognized in accumulated other comprehensive loss was a gain of $0.8 million and $1.3 million, respectively.

We estimate that approximately $10.9 million of pretax loss currently included within accumulated other comprehensive loss will be reclassified into earnings in the next twelve months.