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Derivative Financial Instruments and Fair Value Measurements | 3 Months Ended
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Mar. 31, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments and Fair Value Measurements | (13) Derivative Financial Instruments and Fair Value Measurements Derivative Financial Instruments We are exposed to various market risks relating to our ongoing business operations. The primary market risks, which are managed using derivative instruments, are foreign currency exchange rate risk and interest rate risk. In certain circumstances, we enter into cross-currency swaps and foreign currency forward exchange contracts (“forward contracts”) to reduce the effects of fluctuating foreign currency exchange rates on our cash flows denominated in foreign currencies. Our exposure to market risk for changes in interest rates relates primarily to our long-term debt obligations. We have historically managed interest rate risk through the use of a combination of fixed and variable rate borrowings. Net Investment Hedges We use cross currency swaps, forward contracts and a portion of our foreign currency denominated debt, a non-derivative financial instrument, to protect the value of our net investments in certain of our foreign subsidiaries. For derivative instruments that are designated and qualify as hedges of our net investments in foreign operations, the changes in fair values of the derivative instruments are recognized in foreign currency translation, a component of accumulated other comprehensive loss (“AOCL”), to offset the changes in the values of the net investments being hedged. For non-derivative financial instruments that are designated and qualify as hedges of net investments in foreign operations, the change in the carrying value of the designated portion of the non-derivative financial instrument due to changes in foreign currency exchange rates is also recorded in foreign currency translation. The €400.0 ($430.6) notes due June 2027 and the €500.0 ($540.0) no tes due June 2026 were designated as a hedge of our net investment in our foreign subsidiaries with a Euro-functional currency as of March 31, 2025. In September 2022, we entered into a cross currency swap agreement that net converts fixed-rate Swiss franc (“CHF”) payments to fixed-rate United States dollar payments. This swap was designated as a net investment hedge of our foreign subsidiary with CHF functional currency. The effect of our net investment hedges on AOCL for the three months ended March 31, 2025 and 2024 was as follows:
|  | Gain (Loss) Recognized in Other Comprehensive Income |
|  | Three Months Ended March 31, |
Instrument |  | 2025 |  |  | 2024 |
Euro Notes |  | $ | (41.8 | ) |  | $ | 21.8 |
Cross-currency swaps |  |  | (10.5 | ) |  |  | 31.3 |
Cash Flow Hedges We use forward currency exchange contracts to hedge the changes in cash flows of certain operational expenses denominated in foreign currency due to changes in foreign currency exchange rates. The changes in fair value of the forward currency exchange contracts derivatives are recorded in AOCL and reclassified into earnings when the underlying operating expense is recognized in earnings. On June 9, 2022, we entered into a forward starting interest rate swap agreement with a notional amount of €300.0 and a fixed rate of 1.936%, which was accounted for as a cash flow hedge, to hedge the interest rate exposure related to our anticipated issuance of €400.0 notes to repay our existing €400.0 notes maturing in September 2022. Upon the issuance of the notes on June 30, 2022, we settled this forward starting interest rate swap, resulting in a gain of $2.0, which was recorded in AOCI and is being amortized over the term of the notes as an offset to interest expense. The following tables present the impact that changes in the fair values of derivatives designated as cash flow hedges had on other comprehensive income (“OCI”), AOCL and earnings for the three months ended March 31, 2025 and 2024:
|  | Gain (Loss) Recognized in OCI |  |  |  |  | Gain (Loss) Reclassified from AOCL into Income |
|  | Three Months Ended March 31, |  |  | Location of Gain (Loss) Reclassified |  | Three Months Ended March 31, |
Instrument |  | 2025 |  |  | 2024 |  |  | from AOCI into Income |  | 2025 |  |  | 2024 |
Forward starting interest swap |  | $ | — |  |  | $ | — |  |  | Interest and other expenses, net |  | $ | 0.1 |  |  | $ | 0.1 |
We expect the net amount of pre-tax derivative gains and losses included in AOCL at March 31, 2025 to be reclassified into earnings within the next 12 months will not be significant. The actual amount that will be reclassified to earnings over the next 12 months will vary due to future currency exchange rates. Fair Value Hedges We account for derivatives as fair value hedges when the hedged item is a recognized asset, liability, or firm commitment. We use cross currency swaps to hedge the changes in cash flows of certain of our foreign currency denominated intercompany notes due to changes in foreign currency exchange rates. We record the change in carrying value of the foreign currency denominated notes due to changes in exchange rates into earnings each period. The changes in fair value of the cross-currency swap derivatives are recorded in other comprehensive income (“OCI”) with an immediate reclassification into earnings for the change in fair value attributable to fluctuations in foreign currency exchange rates. In March 2022, we entered into a cross currency swap agreement to hedge an intercompany fixed-rate CHF denominated note, including the annual interest payment, to a fixed-rate Euro denominated note. On April 18, 2024, we settled the swaps at maturity for a net cash inflow of $14.9 and entered into a new cross currency swap with a maturity date of April 2027. The cross currency swaps convert our intercompany fixed-rate CHF denominated note, including the annual interest payment and the payment of remaining principal at maturity, to a fixed-rate Euro denominated note. The economic effect of the swaps is to eliminate the uncertainty of cash flows in CHF associated with the note by fixing the principal at €236.9 with a fixed annual interest rate of 3.45%. In September 2022, we entered into a cross currency swap agreement to hedge an intercompany fixed-rate CHF denominated note, including the annual interest payment, to a fixed-rate Euro denominated note. On September 26, 2024, we settled the swaps at maturity for a net cash inflow of $1.6 and entered into a new cross currency swap with a maturity date of September 2027. The economic effect of the swaps is to eliminate the uncertainty of cash flows in CHF associated with the note by fixing the principal at €63.6 with a fixed annual interest rate of 3.27%. The following tables present the impact that the fair value hedges had on our Consolidated Statement of Operations for the three months ended March 31, 2025 and 2024:
|  | Gain (Loss) Recognized in OCI |  |  |  |  | Gain (Loss) Recognized in Income |
|  | Three Months Ended March 31, |  |  | Location of Gain (Loss) |  | Three Months Ended March 31, |
Instrument |  | 2025 |  |  | 2024 |  |  | Recognized in Income |  | 2025 |  |  | 2024 |
Intercompany CHF notes |  | $ | — |  |  | $ | — |  |  | Interest and other expenses, net |  | $ | 5.8 |  |  | $ | 15.4 |
Cross-currency swaps |  |  | (0.8 | ) |  |  | (0.9 | ) |  | Interest and other expenses, net |  |  | (5.8 | ) |  |  | (15.4 | )
We assessed the hedging relationship at the inception of the hedges in order to determine whether the derivatives that are used in the transaction are highly effective in offsetting the cash flows of the hedged item, and will continue to assess the relationship on an ongoing basis. We use the hypothetical derivative method in conjunction with regression analysis using a third-party valuation to measure effectiveness of our cross-currency swap agreements and our forward currency exchange contracts. Non-designated instruments We also use certain derivatives, which are not designated as hedging instruments, as economic hedges of foreign currency and interest rate exposure. For our forward contracts that are not designated as hedges, any gain or loss resulting from the change in fair value is recognized in current period earnings. These gains or losses are offset by the exposure related to receivables and payables with our foreign subsidiaries and to interest due on our Euro-denominated notes, which is paid annually in June and September. The effect of our forward contracts that are not designated as hedging instruments on the consolidated statements of operations for the three months ended March 31, 2025 and 2024 was as follows:
|  |  |  | Gain (Loss) Recognized in Income
|  | Location of Gain (Loss) |  | Three Months Ended March 31, |  |
Instrument |  | Recognized in Income |  | 2025 |  |  | 2024 |  |
Foreign currency forward contracts |  | Interest and other expenses, net |  | $ | 1.3 |  |  | $ | (7.3 | ) |
The following tables present the fair value of derivative and non-derivative assets and liabilities on the Consolidated Balance Sheets as of March 31, 2025 and December 31, 2024:
|  | Assets |
|  |  |  | March 31, |  |  | December 31, |
|  | Balance Sheet Location |  | 2025 |  |  | 2024 |
Instruments designated as fair value hedges: |  |  |  |  |  |  |  |
Cross-currency swaps |  | Accounts Receivable, net |  |  | 4.0 |  |  |  | 10.3 |
Instruments designated as net investment hedges: |  |  |  |  |  |  |  |
Cross-currency swaps |  | Accounts Receivable, net |  |  | 14.6 |  |  |  | 7.8 |
Instruments not designated as hedges: |  |  |  |  |  |  |  |
Foreign currency forward contracts |  | Accounts Receivable, net |  |  | 0.5 |  |  |  | — |
Total instruments |  |  |  | $ | 19.1 |  |  | $ | 18.1 |
|  | Liabilities |
|  |  |  | March 31, |  |  | December 31, |
|  | Balance Sheet Location |  | 2025 |  |  | 2024 |
Instruments designated as net investment hedges: |  |  |  |  |  |  |  |
Euro Notes due in 2026 |  | Long-term debt |  |  | 540.0 |  |  |  | 516.6 |
Euro Notes due in 2027 |  | Long-term debt |  |  | 430.6 |  |  |  | 411.8 |
Cross-currency swaps |  | Accrued liabilities |  |  | 61.7 |  |  |  | 44.8 |
Instruments not designated as hedges: |  |  |  |  |  |  |  |
Foreign currency forward contracts |  | Accrued liabilities |  |  | — |  |  |  | 0.7 |
Total instruments |  |  |  | $ | 1,032.3 |  |  | $ | 973.9 |
Fair Value Measurements The carrying value of the long-term debt approximates fair value, except for the Euro-denominated notes, because the interest rates are variable and reflect current market rates. The fair value of the Euro-denominated notes, as observable at commonly quoted intervals (Level 2 inputs), was $973.8 and $928.5 as of March 31, 2025 and December 31, 2024, respectively, compared to a carrying value of $970.6 and $928.4, respectively. Our deferred compensation plan assets, included in other assets on the Consolidated Balance Sheets, were $163.9 and $165.4 as of March 31, 2025 and December 31, 2024, respectively. We determine the fair value of these assets, comprised of publicly traded securities, by using market quotes as of the last day of the period (Level 1 inputs). We measure the fair value of the foreign currency forward contracts and cross-currency swaps at the value based on either directly or indirectly observable inputs from third parties (Level 2 inputs).

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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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