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Fair value of financial instruments | 9 Months Ended
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Sep. 30, 2023
Fair Value Disclosures [Abstract] |
Fair value of financial instruments | Fair value of financial instruments Investments in Marketable Securities We have investments in mutual funds, equity securities and available for sale debt securities that are carried at fair value in the condensed financial statements. For these investments, fair value was based on quoted market prices, which we have categorized as a Level 1 valuation. Fixed-Rate Debt The fair value and carrying value of our material fixed-rate debt, excluding any unamortized debt issuance costs, are as follows:
(In millions) | September 30, 2023 |  | December 31, 2022
$600 million senior unsecured notes |  |  |
Carrying value | $ | 600.0 |  |  | 600.0 |
Fair value | 520.2 |  |  | 528.7 |
$400 million senior unsecured notes |  |  |
Carrying value | 400.0 |  |  | 400.0 |
Fair value | 372.3 |  |  | 369.0 |
Pricing inputs for nonpublic debt are often not observable. The fair value estimates of our senior notes reflect unobservable estimates and assumptions, which we have categorized as a Level 3 valuation. Our fair value estimates were based on the present value of future cash flows, discounted at rates for public debt at the measurement date. The rates for public debt were additionally adjusted for a factor which represented the change in the interest spreads between the inception rates and the public debt rates at the measurement date. Forward and Swap Contracts We have outstanding foreign currency forward and swap contracts to hedge transactional risks associated with foreign currencies. At September 30, 2023, the notional value of our outstanding foreign currency forward and swap contracts was $574 million, with average maturities of approximately one month. These foreign currency forward and swap contracts primarily offset exposures in the euro and the Mexican peso and are not designated as hedges for accounting purposes. Accordingly, changes in their fair value are recorded immediately in earnings. At September 30, 2023, the fair value of our short term foreign currency contracts was a net asset of approximately $6.3 million of which $9.2 million was included in prepaid expenses and other and $2.9 million was included in accrued liabilities on the condensed consolidated balance sheet. At December 31, 2022, the fair value of these foreign currency contracts was a net liability of approximately $7.0 million of which $3.5 million was included in prepaid expenses and other and $10.5 million was included in accrued liabilities on the condensed consolidated balance sheet. Amounts under these contracts were recognized in other operating income (expense) as follows:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in millions) | 2023 |  | 2022 |  | 2023 |  | 2022
Derivative instrument gains included in other operating income (expense) | $ | 4.3 |  |  | 25.4 |  |  | $ | 22.9 |  |  | 58.4 |
. In the first quarter of 2019, we entered into a long term cross currency swap contract to hedge exposure in Brazilian real, which is designated as a cash flow hedge for accounting purposes. Accordingly, changes in the fair value of the cash flow hedge are initially recorded in the gains (losses) on cash flow hedges component of accumulated other comprehensive income (loss). We immediately reclassify from accumulated other comprehensive income (loss) to earnings an amount to offset the remeasurement recognized in earnings associated with the respective intercompany loan. Additionally, we reclassify amounts from accumulated other comprehensive income (loss) to interest expense amounts that are associated with the interest rate differential between a U.S. dollar denominated intercompany loan and a Brazilian real denominated intercompany loan. At September 30, 2023, the notional value of this contract was $30 million with a weighted-average maturity of 0.1 years. At September 30, 2023, the fair value of the cross currency swap contract was an asset of $7.2 million and was included in prepaid expenses and other on the condensed consolidated balance sheet. At December 31, 2022, the fair value of the cross currency swap contract was an asset of $14.6 million and was included in prepaid expenses and other on the condensed consolidated balance sheet. Amounts under this contract were recognized in other operating income (expense) to offset transaction gains or losses and in interest expense as follows:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
(In millions) | 2023 |  | 2022 |  | 2023 |  | 2022
Derivative instrument gains (losses) included in other operating income (expense) | $ | (0.5) |  |  | 0.3 |  |  | $ | (7.7) |  |  | (6.2) |
Offsetting transaction gains (losses) | 0.5 |  |  | (0.3) |  |  | 7.7 |  |  | 6.2 |
Derivative instrument losses included in interest expense | (0.2) |  |  | (0.3) |  |  | (0.7) |  |  | (1.0) |
Net derivative instrument gains (losses) | (0.7) |  |  | — |  |  | (8.4) |  |  | (7.2) |
In the first quarter of 2019, we entered into ten interest rate swaps that hedge cash flow risk associated with changes in variable interest rates and that are designated as cash flow hedges for accounting purposes. Accordingly, changes in the fair value of these cash flow hedges are initially recorded in the gains (losses) on cash flow hedges component of accumulated other comprehensive income (loss). We reclassify amounts from accumulated other comprehensive income (loss) into earnings in the same periods that the hedged debt affects earnings. At September 30, 2023, the notional value of these contracts was $400 million with a remaining weighted-average maturity of 0.2 years. At September 30, 2023, the fair value of these interest rate swaps was an asset of $4.1 million and was included in prepaid expenses and other on the condensed consolidated balance sheet. At December 31, 2022, the fair value of these interest rate swaps was a net asset of $10.0 million of which $9.3 million was included in prepaid expenses and other and $0.7 million was included in other assets on the condensed consolidated balance sheet. In the first quarter of 2022, we entered into four forward-starting interest rate swaps that hedge cash flow risk associated with changes in variable interest rates and that were designated as cash flow hedges for accounting purposes. The forward-starting interest rate swaps had a maturity date in July 2030 and had a mandatory settlement scheduled to occur in July 2022. In July 2022, an amendment was executed to terminate the four forward-starting interest rates swaps and concurrently enter into three forward-starting interest rate swaps with an amended maturity in June 2027. We designated these interest rates swaps as cash flow hedges for accounting purposes. Accordingly, the changes in the fair value of these cash flow hedges are initially recorded in the gains (losses) on cash flow hedges component of accumulated other comprehensive income (loss). We reclassify amounts from accumulated other comprehensive income (loss) into earnings in the same periods that the hedged debt affects earnings. As of the July 2022 termination date of the four previous interest rate swaps, a cumulative net gain of $9.2 million was recorded in accumulated other comprehensive income (loss). This amount is reclassified to earnings as forecasted interest payments occur through the original maturity date in July 2030. The three new interest rate swaps had an inception date fair value equal to a $9.2 million asset, approximating the settlement value of the four previous interest rate swaps. Instead of receiving cash upon termination of the previous swaps, we elected to negotiate a lower off-market fixed rate for the three new interest rate swaps. This inception date fair value is amortized to earnings on a ratable and systematic basis through the maturity date of the new interest rate swaps in June 2027. At September 30, 2023, the notional value of these contracts was $200 million with a remaining weighted-average maturity of 1.9 years. At September 30, 2023, the fair value of these interest rate swaps was a net asset of $18.4 million of which $7.0 million was included in prepaid expenses and other and $11.4 million was included in other assets on the condensed consolidated balance sheet. At December 31, 2022, the fair value of these interest rate swaps was a net asset of $16.4 million of which $6.0 million was included in prepaid expenses and other and $10.4 million was included in other assets on the consolidated balance sheet. In the fourth quarter of 2022, we entered into two interest rate swaps with a maturity date in June 2027. These swaps are intended to hedge cash flow risk associated with changes in variable interest rates and were designated as cash flow hedges for accounting purposes. Accordingly, changes in the fair value of these cash flow hedges are initially recorded in the gains (losses) on cash flow hedges component of accumulated other comprehensive income (loss). We reclassify amounts from accumulated other comprehensive income (loss) into earnings in the same periods that the hedged debt affects earnings. At September 30, 2023, the notional value of these contracts was $175 million with a remaining weighted-average maturity of 1.9 years. At September 30, 2023, the fair value of these interest rate swaps was a net asset of $5.0 million of which $3.0 million was included in prepaid expenses and other and $2.0 million was included in other assets on the condensed consolidated balance sheet. At December 31, 2022, the fair value of these interest rate swaps was a net asset of $1.0 million of which $2.0 million was included in prepaid expenses and other and $1.0 million was included in other liabilities on the condensed consolidated balance sheet. In the second quarter of 2023, we entered into eight forward-starting interest rates swaps which will become effective in January 2024. The forward-starting interest rate swaps have a maturity date in June 2027. These swaps are intended to replace the existing $400 million interest rate swaps that will mature on the same date in January 2024 that the forward-starting swaps become effective. These swaps are intended to hedge cash flow risk associated with changes in variable interest rates and were designated as cash flow hedges for accounting purposes. Accordingly, changes in the fair value of these cash flow hedges are initially recorded in the gains (losses) on cash flow hedges component of accumulated other comprehensive income (loss). At September 30, 2023, the notional value of these contracts was $400 million with a remaining weighted-average maturity of 2.1 years. At September 30, 2023, the fair value of these interest rate swaps was an asset of $14.8 million of which $5.6 million was included in prepaid expenses and other and $9.2 million was included in other assets on the condensed consolidated balance sheet. In the second quarter of 2021, we entered into ten cross currency swaps to hedge a portion of our net investments in certain of our subsidiaries with euro functional currencies. As net investment hedges for accounting purposes, we elected to use the spot method to assess effectiveness for these derivatives that are designated as net investment hedges. Accordingly, changes in fair value attributable to changes in the undiscounted spot rates are recorded in the foreign currency translation adjustments component of accumulated other comprehensive income (loss) and will remain there until the hedged net investments are sold or substantially liquidated. We have elected to exclude the spot-forward difference from the assessment of hedge effectiveness and are amortizing this amount separately on a straight-line basis over the term of these cross currency swaps. In July 2022, we terminated these cross currency swap contracts and received $67 million in cash for the fair value of the derivative assets at the settlement date. We subsequently entered into a total of nine cross currency swaps with a total notional of $400 million to hedge a portion of our net investment in certain of our subsidiaries with euro functional currencies. Swaps with a total notional of $215 million will terminate in May 2026 and swaps with a total notional of $185 million will terminate in April 2031. We have designated these swaps as net investment hedges for accounting purposes. In July 2023, we entered into a zero cost foreign exchange collar contract with a $215 million notional amount and a May 2026 expiration date. We sold a put option with a lower strike price and bought a call option with a higher strike price to manage the foreign exchange risk related to the final settlement of the $215 million notional cross currency swaps. Upon the execution of the zero cost foreign exchange collar contract, we de-designated the existing $215 million notional cross currency swaps and re-designated the combined $215 million notional cross currency swaps and zero cost collar into a new hedging instrument. At re-designation, the existing $215 million notional cross currency swaps had a non-zero fair value representing an off-market component of the participating cross currency swaps. The off-market value is being ratably amortized into earnings through May 2026. The combined cross currency swaps and zero cost collar has been designated as a net investment hedge for accounting purposes. At September 30, 2023, the total notional value of these cross currency swap contracts was $400 million with a remaining weighted average maturity of 2.1 years for the cross currency swaps maturing in May 2026 and a remaining weighted average maturity of 6.3 years for the cross currency swaps maturing in April 2031. At September 30, 2023, the fair value of these cross currency swaps was a net liability of $17.3 million of which $5.6 million was included in prepaid expenses and other and $22.9 million was included in other liabilities on the condensed consolidated balance sheet. At December 31, 2022, the fair value of these cross currency swaps was a net liability of $11.7 million of which $5.6 million was included in prepaid expenses and other and $17.3 million was included in other liabilities on the condensed consolidated balance sheet. At September 30, 2023, the fair value of the zero cost collar was an asset of $2.6 million included in other assets on the condensed consolidated balance sheet. The effect of the interest rate swaps and the amortization of the spot-forward difference on the net investment hedges cross currency swaps is included in interest expense as follows:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
(In millions) | 2023 |  | 2022 |  | 2023 |  | 2022
Interest rate swaps designated as cash flow hedges | $ | (5.4) |  |  | 0.2 |  |  | (14.4) |  |  | 4.4 |
Cross currency swaps designated as net investment hedges | (1.2) |  |  | (1.3) |  |  | (4.1) |  |  | (4.4) |
Net derivative instrument (gains) losses included in interest expense | $ | (6.6) |  |  | (1.1) |  |  | (18.5) |  |  | — |
The fair values of these forward and swap contracts are based on the present value of net future cash payments and receipts, as well as inputs related to forward interest rates and forward currency rates that are derived principally from, or corroborated by, observable market data, which we have categorized as a Level 2 valuation. Contingent Consideration In the second quarter of 2020, we acquired cash management operations in Malaysia from U.K.-based G4S and have recorded a payable for contingent consideration. The contingent consideration will be paid when minimum dividend distributions are received by Brink's relating to cash on the balance sheets of the Malaysia subsidiaries as of the acquisition date. We used a probability-weighted approach to estimate the fair value of the contingent consideration. The fair value of the contingent consideration is the full $22 million that remains potentially payable as of September 30, 2023 as we believe it is unlikely that the contingent consideration payments will be reduced. In the fourth quarter of 2022, we acquired NoteMachine and recognized a payable for contingent consideration, consisting of two components. The first component was a payable based on post-acquisition increases in ATM cash withdrawal interchange fees through June 30, 2023. This payable was written off in the second quarter of 2023 as no increases in the fee occurred through June 30, 2023. The $4.8 million gain is classified as other operating income (expense) in the condensed consolidated statements of operations. The second component is a payable contingent on our post-acquisition collection of ATM tax rate rebates from municipal governments in the U.K. The fair value of this payable was estimated at $10.5 million as of the October 3, 2022 acquisition date. Approximately $9.7 million of the contingent consideration has been paid through September 30, 2023, and we do not expect any material change to the payable estimated as of the acquisition date. Other Financial Instruments Other financial instruments include cash and cash equivalents, accounts receivable, floating rate debt, accounts payable and accrued liabilities. The financial statement carrying amounts of these items approximate the fair value. There were no transfers in or out of any of the levels of the valuation hierarchy in the first nine months of 2023.

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- Definition The entire disclosure for financial instruments. This disclosure includes, but is not limited to, fair value measurements of short and long term marketable securities, international currencies forward contracts, and auction rate securities. Financial instruments may include hedging and non-hedging currency exchange instruments, derivatives, securitizations and securities available for sale at fair value. Also included are investment results, realized and unrealized gains and losses as well as impairments and risk management disclosures. + References No definition available. + Details
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