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Financial Instruments, Hedging Activities and Fair Value Measurements | 6 Months Ended
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Jun. 30, 2023
Fair Value Disclosures [Abstract] |
Financial Instruments, Hedging Activities and Fair Value Measurements | FINANCIAL INSTRUMENTS, HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENTS Fair value of financial instruments Equity securities with readily determinable fair values - Balances of equity securities are recorded within other assets, with any changes in fair value recorded within other expense, net. The fair values of equity securities are based upon quoted market prices, which are considered Level 1 inputs. Long-term borrowings - The estimated fair values of these borrowings are based on recent trades, as reported by a third-party pricing service. Due to the infrequency of trades, these inputs are considered to be Level 2 inputs. Derivative instruments - The Company’s interest rate swaps, cross-currency swaps and foreign currency forward contracts are valued using broker quotations, or market transactions in either the listed or over-the-counter markets. As such, these derivative instruments are included in the Level 2 hierarchy. Fair value of contingent consideration During April 2021, in conjunction with an acquisition in China, we recorded the fair value of contingent consideration of $7.3 million. The contingent consideration was valued using a probability-weighted expected payment method that considered the timing of expected future cash flows and the probability of whether key elements of the contingent event are completed. The fair value of contingent consideration is valued at each balance sheet date, until amounts become payable, with adjustments recorded within other expense, net in the condensed consolidated statements of operations. Due to the significant unobservable inputs used in the valuations, these liabilities were categorized within Level 3 of the fair value hierarchy. During the six months ended June 30, 2023, the contingent consideration was settled for $6.9 million. The table below presents the fair values of our financial instruments measured on a recurring basis by level within the fair value hierarchy at June 30, 2023 and December 31, 2022.
|  | June 30, 2023 |  | December 31, 2022
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Prepaid expenses and other current assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps (1) |  | $ | — |  |  | $ | 1.2 |  |  | $ | — |  |  | $ | 1.2 |  |  | $ | — |  |  | $ | 2.3 |  |  | $ | — |  |  | $ | 2.3 |
Cross-currency swaps (2) |  | — |  |  | 2.9 |  |  | — |  |  | 2.9 |  |  | — |  |  | 35.0 |  |  | — |  |  | 35.0 |
Other assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cross-currency swaps (2) |  | — |  |  | 2.2 |  |  | — |  |  | 2.2 |  |  | — |  |  | 14.0 |  |  | — |  |  | 14.0 |
Investments in equity securities |  | 0.5 |  |  | — |  |  | — |  |  | 0.5 |  |  | 1.0 |  |  | — |  |  | — |  |  | 1.0 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other accrued liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cross-currency swaps (2) |  | — |  |  | 5.6 |  |  | — |  |  | 5.6 |  |  | — |  |  | — |  |  | — |  |  | — |
Contingent consideration |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 7.2 |  |  | 7.2 |
Long-term borrowings: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2029 Dollar Term Loans |  | — |  |  | 1,851.9 |  |  | — |  |  | 1,851.9 |  |  | — |  |  | 1,976.3 |  |  | — |  |  | 1,976.3 |
2025 Euro Senior Notes |  | — |  |  | 483.6 |  |  | — |  |  | 483.6 |  |  | — |  |  | 460.8 |  |  | — |  |  | 460.8 |
2027 Dollar Senior Notes |  | — |  |  | 473.8 |  |  | — |  |  | 473.8 |  |  | — |  |  | 462.8 |  |  | — |  |  | 462.8 |
2029 Dollar Senior Notes |  | — |  |  | 595.8 |  |  | — |  |  | 595.8 |  |  | — |  |  | 581.1 |  |  | — |  |  | 581.1 |
(1) Cash flow hedge (2) Net investment hedge The table below presents a roll forward of activity for the Level 3 liabilities during the six months ended June 30, 2023.
|  | Fair Value Using Significant Unobservable Inputs (Level 3)
Beginning balance December 31, 2022 |  | $ | 7.2 |
Payments |  | (6.9) |
Change in fair value |  | (0.3) |
Ending balance at June 30, 2023 |  | $ | — |
Derivative Financial Instruments We selectively use derivative instruments to reduce market risk associated with changes in foreign currency exchange rates and interest rates. The use of derivatives is intended for hedging purposes only, and we do not enter into derivative instruments for speculative purposes. Derivative Instruments Qualifying and Designated as Net Investment and Cash Flow Hedges Cross-Currency Swaps Designated as Net Investment Hedges During the three months ended March 31, 2023, three fixed-for-fixed cross currency swaps with an aggregate notional amount totaling $475.0 million, previously executed in 2018, matured resulting in net cash proceeds of $29.4 million. Concurrently, we entered into one fixed-for-fixed cross-currency swap with a notional amount of $150.0 million to hedge the variability of exchange rate impacts between the U.S. Dollar and Euro. Under the terms of this new cross-currency swap agreement, the Company notionally exchanged $150.0 million at an interest rate of 7.256% for €142.3 million at an interest rate of 5.697%. The cross-currency swap is designated as a net investment hedge and expires on March 31, 2024. This cross-currency swap is marked to market at each reporting date and any unrealized gains or losses are included in unrealized currency translation adjustments, within accumulated other comprehensive loss ("AOCI"). Interest Rate Swaps Designated as Cash Flow Hedges During the three months ended March 31, 2023, three interest rate swaps with an aggregate notional amount of $475.0 million, previously executed in 2018, matured. Concurrently, we entered into one interest rate swap with a notional amount of $150.0 million to hedge interest rate exposures associated with the 2029 Dollar Term Loans. Under the terms of the interest rate swap agreement, the Company is required to pay the counter-party a stream of fixed interest payments at rates of 4.256% subject to a floor of 0.5% on $150.0 million of notional value, and in turn, receives variable interest payments based on 3-month SOFR from the counter-party. The interest rate swap is designated as a cash flow hedge and expires on March 31, 2024. This interest rate swap is marked to market at each reporting date and any unrealized gains or losses are included in AOCI and reclassified to interest expense in the same period or periods during which the hedged transactions affect earnings. Gains and losses for hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis. The following table sets forth the locations and amounts recognized during the three and six months ended June 30, 2023 and 2022 for the Company's cash flow and net investment hedges.
|  |  |  | Three Months Ended June 30,
|  |  |  | 2023 |  | 2022
Derivatives in Cash Flow and Net Investment Hedges |  | Location of (Gain) Loss Recognized in Income on Derivatives |  | Net Amount of (Gain) Loss Recognized in OCI on Derivatives |  | Amount of Gain Recognized in Income |  | Net Amount of Gain Recognized in OCI on Derivatives |  | Amount of Loss (Gain) Recognized in Income
Interest rate swaps |  | Interest expense, net |  | $ | (0.9) |  |  | $ | (0.2) |  |  | $ | (6.9) |  |  | $ | 4.4 |
Foreign currency forward contracts |  | Cost of goods sold |  | — |  |  | (0.1) |  |  | (0.1) |  |  | — |
Cross-currency swaps |  | Interest expense, net |  | 7.5 |  |  | (1.7) |  |  | (53.8) |  |  | (5.1) |
|  |  |  | Six Months Ended June 30,
|  |  |  | 2023 |  | 2022
Derivatives in Cash Flow and Net Investment Hedges |  | Location of (Gain) Loss Recognized in Income on Derivatives |  | Net Amount of (Gain) Loss Recognized in OCI on Derivatives |  | Amount of Gain Recognized in Income |  | Net Amount of Gain Recognized in OCI on Derivatives |  | Amount of Loss (Gain) Recognized in Income
Interest rate swaps |  | Interest expense, net |  | $ | (1.5) |  |  | $ | (2.6) |  |  | $ | (19.3) |  |  | $ | 11.5 |
Foreign currency forward contracts |  | Cost of goods sold |  | — |  |  | (0.2) |  |  | (0.1) |  |  | — |
Cross-currency swaps |  | Interest expense, net |  | 14.2 |  |  | (5.9) |  |  | (59.4) |  |  | (9.9) |
Over the next 12 months, we expect a gain of $1.2 million pertaining to cash flow hedges to be reclassified from AOCI into earnings, related to our interest rate swaps and foreign currency forward contracts. Derivative Instruments Not Designated as Cash Flow Hedges We periodically enter into foreign currency forward and option contracts to reduce market risk and hedge our balance sheet exposures and cash flows for subsidiaries with exposures denominated in currencies different from the functional currency of the relevant subsidiary. These contracts have not been designated as hedges and all gains and losses are marked to market through other expense, net in the condensed consolidated statements of operations. Fair value gains and losses of derivative contracts, as determined using Level 2 inputs, that have not been designated for hedge accounting treatment under ASC 815, Derivatives and hedging, are recorded in earnings as follows:
Derivatives Not Designated as Hedging Instruments under ASC 815 |  | Location of (Gain) Loss Recognized in Income on Derivatives |  | Three Months Ended June 30, |  | Six Months Ended June 30,
|  | 2023 |  | 2022 |  | 2023 |  | 2022
Foreign currency forward contracts |  | Other expense, net |  | $ | (4.0) |  |  | $ | 2.3 |  |  | $ | (6.9) |  |  | $ | 2.6 |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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