Derivatives and Hedging

12 Months Ended

Dec. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

We are exposed to changes in foreign currency exchange rates, primarily relating to intercompany debt and certain forecasted sales transactions denominated in currencies other than the U.S. dollar, as well as to changes in interest rates as a result of our variable-rate debt. Consequently, we use derivative financial instruments to manage and mitigate such risk. We do not enter into derivative transactions for speculative or trading purposes.

We utilize a variety of derivative instruments, all of which are designated as cash flow hedges, including:

•foreign exchange forward contracts to hedge certain forecasted sales transactions denominated in foreign currency;

•a cross-currency swap arrangement used to manage variability due to movements in foreign currency exchange rates related to a Euro-denominated intercompany loan; and

•pay-fixed rate, receive-floating rate interest rate swap arrangements to effectively convert portions of our variable-rate debt to fixed.

The following table summarizes our outstanding derivative instruments on a gross basis:


	Notional Amount				Fair Value of Derivative Assets(2)				Fair Value of Derivative Liabilities(2)
	December 31, 2020		December 31, 2019		December 31, 2020		December 31, 2019		December 31, 2020		December 31, 2019
Derivative Instrument:

Level 2:
Foreign exchange forward contracts	$	276.2	$	138.9	$	—	$	—	$	15.8	$	3.3
Cross-currency swap(1)	1,461.9		1,355.8		—		—		167.2		64.1
Interest rate swaps	2,022.0		1,289.0		2.0		—		33.4		26.4
Total hedges	$	3,760.1	$	2,783.7	$	2.0	$	—	$	216.4	$	93.8

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(1) The notional values of the cross-currency swap have been translated from Euros to U.S. dollars at the foreign currency rates in effect at December 31, 2020 and 2019 of approximately 1.22 and 1.12, respectively.

(2) In our balance sheets, all derivative assets are recorded within prepaid expenses and other current assets and all derivative liabilities are recorded within accrued expenses and other current liabilities.

The following table summarizes the effect of our designated cash flow hedging derivative instruments on AOCI:


	Unrealized Gains (Losses) Recognized in Other Comprehensive Income (Loss)
	Year Ended December 31,
	2020		2019		2018
Derivative Instrument:

Foreign exchange forward contracts(1)	$	(17.6)	$	(2.7)	$	8.9
Cross-currency swap	16.2		25.8		(3.5)
Interest rate swaps	(4.9)		(25.0)		17.7
Total hedges	$	(6.3)	$	(1.9)	$	23.1

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(1) Amounts include gains and losses realized upon contract settlement but not yet recognized into earnings from AOCI.

The following table summarizes the locations and amounts of gains (losses) recognized within earnings related to our cash flow hedging relationships:


	Year Ended December 31,
	2020						2019						2018
	Revenue		Interest Expense		Other Income (Expense), Net		Revenue		Interest Expense		Other Income (Expense), Net		Revenue		Interest Expense		Other Income (Expense), Net
Foreign exchange forward contracts:
Reclassified from AOCI into income	$	2.7	$	—	$	—	$	3.2	$	—	$	—	$	(2.1)	$	—	$	—
Cross-currency swap:
Reclassified from AOCI into income (1)	—		28.9		(120.4)		—		30.1		28.1		—		28.3		65.9
Interest rate swaps:
Reclassified from AOCI into income	—		(25.6)		—		—		(2.6)		—		—		(6.5)		—

Total hedges	$	2.7	$	3.3	$	(120.4)	$	3.2	$	27.5	$	28.1	$	(2.1)	$	21.8	$	65.9

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(1) The amounts reflected in other income (expense), net include $119.3 million, $(28.7) million and $(67.3) million reclassified from AOCI to offset the earnings impact of the remeasurement of the Euro-denominated intercompany loan hedged by the cross-currency swap during 2020, 2019 and 2018, respectively.

As of December 31, 2020, we estimate that approximately $9.8 million of net deferred losses related to our cash flow hedges will be recognized in earnings over the next 12 months. No amounts were excluded from our effectiveness testing during any of the periods presented.

Risk Management Strategies

Foreign Exchange Forward Contracts

From time-to-time, we may enter into foreign exchange forward contracts with financial institutions to hedge certain forecasted sales transactions denominated in foreign currency. We designate these forward contracts as cash flow hedges, which are recognized as either assets or liabilities at fair value. At December 31, 2020, all such contracts had maturities of 18 months or less.

Cross-Currency Swap Contract

In April 2017, in order to manage variability due to movements in foreign currency rates related to a Euro-denominated intercompany loan, we entered into a five-year cross-currency swap arrangement. The cross-currency swap, which matures on April 3, 2022, had an amortizing notional amount of €1,243.3 million at inception (approximately $1,325.4 million). It converts the 3.00% fixed rate Euro-denominated interest and principal receipts on the intercompany loan into fixed U.S. dollar interest and principal receipts at a rate of 5.44%. Pursuant to the contract, the Euro notional value will be exchanged for the U.S. dollar notional value at maturity. The cross-currency swap has been designated as a cash flow hedge. Accordingly, it is recognized as an asset or liability at fair value and the unrealized gains and losses on the contract are included in gain (loss) on swaps and foreign currency hedging, net within AOCI. Gains and losses are reclassified to interest income or expense over the period the hedged loan affects earnings. As such, amounts recorded in other comprehensive income (loss) (OCI) will be recognized in earnings within or against interest expense when the hedged interest payment is accrued each month. In addition, an amount is reclassified from AOCI to other income (expense), net each reporting period, to offset the earnings impact of the hedged instrument.

Interest Rate Swap Contracts

In April 2017, we entered into a five-year pay-fixed rate, receive-floating rate interest rate swap arrangement to effectively convert a portion of the variable-rate debt to fixed. This arrangement, which matures on April 3, 2022, had an amortizing notional amount of $1,325.4 million at inception and swaps the variable interest rate on our LIBOR-based borrowings for a fixed rate of 5.44%.

In August 2020, in conjunction with the issuance of the 2027 Term Loans discussed in Note 9, we entered into seven-year pay-fixed rate, receive-floating rate interest rate swap arrangements to effectively convert the variable one-month LIBOR interest rate on the 2027 Term Loans borrowings to a fixed rate of 0.705%. These interest rate swaps, which mature on August 10, 2027, had an aggregate notional amount of $750.0 million at inception.

The objective of these arrangements, which are designated as cash flow hedges and recognized as assets or liabilities at fair value, is to manage the variability of cash flows in the interest payments related to the portion of the variable-rate debt designated as being hedged. The unrealized gains and losses on the contracts are included in gain (loss) on swaps and foreign currency hedging, net within AOCI, and will be recognized in earnings within or against interest expense when the hedged interest payments are accrued each month.