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Derivative and hedging activities | 3 Months Ended
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Mar. 31, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative and hedging activities | 13. Derivative and hedging activities Hedging instruments: We engage in hedging activities to reduce our exposure to foreign currency exchange rates and interest rates. Our hedging activities are designed to manage specific risks according to our strategies, as summarized below, which may change from time to time. Our hedging activities consist of the following: •Economic hedges — We are exposed to changes in foreign currency exchange rates on certain of our euro-denominated term loans and notes that move inversely from our portfolio of euro-denominated intercompany loans. The currency effects for these non-derivative instruments are recorded through earnings in the period of change and substantially offset one another; •Other hedging activities — Certain of our subsidiaries hedge short-term foreign currency denominated business transactions, external debt and intercompany financing transactions using foreign currency forward contracts. These activities were not material to our consolidated financial statements. Cash flow hedges of interest rate risk In April of 2023, the Company executed a $100.0 million interest rate swap to convert SOFR based floating rate interest to fixed rate interest. The transaction is intended to mitigate our exposure to fluctuations in interest rates and will terminate on October 27, 2025. Our objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next twelve months, the Company estimates that an additional $14.1 million will be reclassified as a reduction to interest expense. As of March 31, 2023, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
(dollars in millions) |  |  |  |
Interest rate derivative |  | Number of instruments |  | Notional
Interest rate swaps |  | 1 |  | $ | 750.0 |
Effect of cash flow hedge accounting on AOCI The table below presents the effect of cash flow hedge accounting on AOCI for the three months ended March 31, 2023 and March 31, 2022.
(in millions) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hedging relationships |  | Amount of gain or (loss) recognized in OCI on Derivative |  | Location of gain or (loss) reclassified from AOCI into income |  | Amount of gain or (loss) reclassified from AOCI into income
|  | Three months ended March 31, |  |  |  |  |  | Three months ended March 31, |  |
|  | 2023 |  | 2022 |  |  |  |  |  |  |  | 2023 |  | 2022 |  |  |  |
Interest rate products |  | (3.5) |  |  | — |  |  |  |  |  |  | Interest income |  | 3.1 |  |  | — |  |  |  |  |
Total |  | $ | (3.5) |  |  | $ | — |  |  |  |  |  |  |  |  | $ | 3.1 |  |  | $ | — |  |  |  |  |
Effect of cash flow hedge accounting on the income statement The table below presents the effect of our derivative financial instruments on the statement of operations for the three months ended March 31, 2023 and March 31, 2022.
|  |  |  |  |  | Three months ended March 31, |  |  |  |  |  |  |  |
|  |  |  |  |  | 2023 |  |  |  |  | 2022 |  |  |  |  |  |  |  |  |  |
(in millions) |  |  |  |  |  | Interest income (expense) |  |  |  |  |  |  |  | Interest income (expense) |  |  |  |  |  |  |  |  |  |  |  |
Total amounts of line items presented in the statements of operations where the effects of cash flow hedges are recorded |  |  |  |  |  | $ | (73.7) |  |  |  |  |  |  |  |  | $ | — |  |  |  |  |  |  |  |  |  |  |  |  |
Amount of gain reclassified from AOCI into income |  |  |  |  |  | $ | 3.1 |  |  |  |  |  |  |  |  | $ | — |  |  |  |  |  |  |  |  |  |  |  |  |
Net investment hedges We are exposed to fluctuations in foreign exchange rates on investments it holds in foreign entities, specifically our net investment in Avantor Holdings B.V., a EUR-functional-currency consolidated subsidiary, against the risk of changes in the EUR-USD exchange rate. For derivatives designated as net investment hedges, the gain or loss on the derivative is reported in AOCI as part of the cumulative translation adjustment. Amounts are reclassified out of AOCI into earnings when the hedged net investment is either sold or substantially liquidated. As of March 31, 2023, we had the following outstanding foreign currency derivatives that were used to hedge its net investments in foreign operations:
(value in millions) |  |  |  |  |  |
Foreign currency derivative |  | Number of instruments |  | Notional sold |  | Notional purchased
Cross-currency swaps |  | 1 |  |  | € | 732.1 |  |  | $ | 750.0 |
Effect of net investment hedges on AOCI and the income statement The table below presents the effect of our net investment hedges on AOCI and the statement of operations for the three months ended March 31, 2023 and March 31, 2022.
(in millions) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hedging relationships |  | Amount of gain or (loss) recognized in OCI on Derivative |  |  |  |  |  | Location of gain or (loss) recognized in income on Derivative (amount excluded from effectiveness testing) |  | Amount of gain or (loss) recognized in income on Derivative (amount excluded from effectiveness testing)
|  | Three months ended March 31, |  |  |  |  |  |  |  | Three months ended March 31,
|  | 2023 |  | 2022 |  |  |  |  |  |  |  |  |  | 2023 |  | 2022
Cross currency swaps |  | $ | (7.2) |  |  | $ | — |  |  |  |  |  |  |  |  | Interest income |  | $ | 3.2 |  |  | $ | — |
Total |  | $ | (7.2) |  |  | $ | — |  |  |  |  |  |  |  |  |  |  | $ | 3.2 |  |  | $ | — |
The Company did not reclassify any other deferred gains or losses related to cash flow hedges from accumulated other comprehensive income (loss) to earnings for the three months ended March 31, 2023 and March 31, 2022. The table below presents the fair value of our derivative financial instruments as well as their classification on the Balance Sheet as of March 31, 2023 and December 31, 2022:
| Derivative assets |  | Derivative liabilities
| March 31, 2023 |  | December 31, 2022 |  | March 31, 2023 |  | December 31, 2022
(in millions) | Balance sheet location |  | Fair value |  | Balance sheet location |  | Fair value |  | Balance sheet location |  | Fair value |  | Balance sheet location |  | Fair value
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate products | Other current assets |  | $ | 19.7 |  |  | Other current assets |  | $ | 26.2 |  |  | Other current liabilities |  | $ | — |  |  | Other current liabilities |  | $ | — |
Foreign exchange products | Other current assets |  | — |  |  | Other current assets |  | — |  |  | Other current liabilities |  | (31.8) |  |  | Other current liabilities |  | (21.4) |
Total |  |  | $ | 19.7 |  |  |  |  | $ | 26.2 |  |  |  |  | $ | (31.8) |  |  |  |  | $ | (21.4) |
Non-derivative financial instruments which are designated as hedging instruments: We designated all of our outstanding €400.0 million 3.875% senior unsecured notes, issued on July 17, 2020, and maturing on July 15, 2028, as a hedge of our net investment in certain of our European operations. For instruments that are designated and qualify as net investment hedges, the foreign currency transactional gains or losses are reported as a component of AOCI. The gains or losses would be reclassified into earnings upon a liquidation event or deconsolidation of a hedged foreign subsidiary. Net investment hedge effectiveness is assessed based upon the change in the spot rate of the foreign currency denominated debt. The critical terms of the foreign currency notes match the portion of the net investments designated as being hedged. At March 31, 2023, the net investment hedge was equal to the designated portion of the European operations and was considered to be perfectly effective. The accumulated (gain) related to the foreign currency denominated debt designated as net investment hedges classified in the foreign currency translation adjustment component of AOCI was $(16.8) million and $(24.3) million as of March 31, 2023 and December 31, 2022, respectively. The amount of loss (gain) related to the foreign currency denominated debt designated as net investment hedges classified in the foreign currency translation adjustment component of other comprehensive income is presented below:
(in millions) | Three months ended March 31, |  |
2023 |  | 2022 |  |  |  |
Net investment hedges | $ | 7.5 |  |  | $ | (11.0) |  |  |  |  |

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- Definition 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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