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Derivatives | 3 Months Ended
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Mar. 31, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives | Derivatives In the normal course of business, the Company is exposed to foreign currency exchange rate risk and interest rate risk on its variable-rate debt. To manage these risks, the Company utilizes a variety of practices including, where considered appropriate, derivative instruments. The Company has no derivative instruments for trading or speculative purposes or derivatives with credit risk-related contingent features. All derivative instruments used by the Company are either exchange traded or are entered into with major financial institutions to reduce credit risk and risk of nonperformance by third parties. The fair values of the Company’s derivative instruments are determined using observable inputs and are considered Level 2 assets or liabilities. The Company utilizes currency forward, swap and, to a lesser extent, option contracts to selectively hedge its exposure to foreign currency risk when it is practical and economical to do so. The use of these contracts minimizes transactional exposure to exchange rate changes. We designate certain of our foreign currency hedges as cash flow hedges. Changes in the fair value of cash flow hedges are reported as a component of Accumulated other comprehensive loss, net of tax and reclassified into earnings when the forecasted transaction affects earnings. For foreign exchange contracts not designated as cash flow hedges, changes in the contracts’ fair values are recorded to Net income (loss) each period. The Company selectively hedges its exposure to interest rate increases on variable-rate, long-term debt when it is practical and economical to do so. Changes in the fair value of interest rate contracts considered cash flow hedges are reported as a component of Accumulated other comprehensive loss, net of tax and reclassified into earnings when the forecasted transaction affects earnings. Interest rate contracts are also used to hedge changes in the fair value of a portion of our senior unsecured notes attributable to changes in the benchmark interest rate. Changes in the fair value of the interest rate contracts and corresponding portion of the hedged debt are recognized in Interest expense. The Company also uses cross-currency swap contracts to selectively hedge its exposure to foreign currency related changes in our net investments in certain foreign operations. We designate these cross-currency swap contracts as net investment hedges. Changes in the fair value of these hedges are deferred within the foreign currency translation component of Accumulated other comprehensive loss, net of tax and reclassified into earnings when the foreign investment is sold or substantially liquidated. During the second quarter of 2022, the Company entered into cross-currency swaps, with a combined notional value of €450.0 million ($478.2 million) maturing on April 1, 2024 and 2025 and October 1, 2026, designated as a hedge of a portion of the Company’s net investment in Euro-denominated subsidiaries. These contracts involve the periodic exchange of U.S. dollar fixed interest rate payments for fixed Euro-denominated payments over the respective contract terms, in addition to an exchange of notional amounts upon maturity. One cross-currency swap involves the periodic exchange of U.S. dollar variable interest rate payments for Euro-denominated variable payments. During 2019 and 2021, the Company entered into a series of pay-fixed, receive-variable interest rate swaps, maturing on January 31, 2027 and December 31, 2027. During March 2022, the interest rate swaps, which had a combined notional value of $500.0 million were terminated and a total settlement of $23.6 million was received from the counterparties. The settlement amount, which represents the fair value of contracts at the time of termination, was recorded in Accumulated other comprehensive loss, net of tax and will be amortized as a component of Interest expense over the remaining term of the hedged forecasted transaction. During March 2022, immediately following the termination of the aforementioned interest rate swaps, the Company entered into pay-fixed, receive-variable interest rate swaps, maturing on January 31, 2027 and December 31, 2027. The swaps have a combined notional value of $500.0 million which declines over the terms of the underlying contracts. The terms of the interest rate swaps mirror the terms of the underlying debt, including timing of the payments and interest rates. During June 2022, the Company entered into a fixed to float interest rate swap with a notional amount of $173.4 million, maturing on October 1, 2026. The swap was designated as a fair value hedge for a portion of our 6.875% senior unsecured notes due in 2026. The contract involves the periodic exchange of fixed interest rate payments for variable payments. During September 2022, the Company entered into pay-fixed, receive-variable interest rate swaps, maturing on May 6, 2027 and April 20, 2028. The swaps have a combined notional value of $650.0 million which declines over the terms of the underlying contracts. The terms of the interest rate swaps mirror the terms of the underlying debt, including timing of the payments and interest rates. The following table presents the fair value of asset and liability derivatives and the respective balance sheet locations at March 31, 2023 (in millions):
| Asset Derivatives |  | Liability Derivatives
| Balance Sheet Location |  | Fair Value |  | Balance Sheet Location |  | Fair Value
Derivatives designated as hedges: |  |  |  |  |  |  |
Foreign exchange contracts - net investment hedge | Accounts receivable, net |  | $ | 4.0 |  |  | Accrued expenses and other current liabilities |  | $ | 0.2 |
Foreign exchange contracts - net investment hedge | Other assets |  | — |  |  | Other liabilities |  | 10.2 |
Interest rate contracts - cash flow hedge | Accounts receivable, net |  | 0.5 |  |  | Accrued expenses and other current liabilities |  | — |
Interest rate contracts - cash flow hedge | Other assets |  | 25.4 |  |  | Other liabilities |  | — |
Interest rate contracts - fair value hedge |  |  |  |  | Other liabilities |  | 5.0 |
Total derivatives designated as hedges |  |  | $ | 29.9 |  |  |  |  | $ | 15.4 |
Derivatives not designated as hedges: |  |  |  |  |  |  |
Foreign exchange contracts | Accounts receivable, net |  | 0.3 |  |  | Accrued expenses and other current liabilities |  | 0.2 |
Total derivatives not designated as hedges |  |  | $ | 0.3 |  |  |  |  | $ | 0.2 |
Total derivatives |  |  | $ | 30.2 |  |  |  |  | $ | 15.6 |
The following table presents the fair value of asset and liability derivatives and the respective balance sheet locations at December 31, 2022 (in millions):
| Asset Derivatives |  | Liability Derivatives
| Balance Sheet Location |  | Fair Value |  | Balance Sheet Location |  | Fair Value
Derivatives designated as hedges: |  |  |  |  |  |  |
Foreign exchange contracts - net investment hedge | Accounts receivable, net |  | $ | 2.4 |  |  | Accrued expenses and other current liabilities |  | $ | 0.2 |
Foreign exchange contracts - net investment hedge | Other assets |  | 1.1 |  |  | Other liabilities |  | 4.7 |
Interest rate contracts - cash flow hedge | Accounts receivable, net |  | 0.6 |  |  | Accrued expenses and other current liabilities |  | — |
Interest rate contracts - cash flow hedge | Other assets |  | 38.1 |  |  | Other liabilities |  | — |
Interest rate contracts - fair value hedge |  |  |  |  | Other liabilities |  | 6.7 |
Total derivatives designated as hedges |  |  | $ | 42.2 |  |  |  |  | $ | 11.6 |
Derivatives not designated as hedges: |  |  |  |  |  |  |
Foreign exchange contracts | Accounts receivable, net |  | 2.7 |  |  | Accrued expenses and other current liabilities |  | 2.1 |
Total derivatives not designated as hedges |  |  | $ | 2.7 |  |  |  |  | $ | 2.1 |
Total derivatives |  |  | $ | 44.9 |  |  |  |  | $ | 13.7 |
The following table presents the fair value of fixed-to-floating interest rate swaps designated as a fair value hedge of our Notes and the respective balance sheet location at March 31, 2023 (in millions):
| Balance Sheet Location |  | Carrying Amount of Hedged Item |  | Cumulative Amount of Adjustment Included in Carrying Amount
Interest rate contracts - fair value hedge | Long-term debt |  | $ | 341.0 |  |  | $ | (5.0) |
Refer to Note 10. Debt for further information on the Notes. The following table provides the net effect that derivative instruments designated in hedging relationships had on Accumulated other comprehensive loss, net of tax and results of operations (in millions):
Derivatives Designated in Hedging Relationships |  |  |  |  |  | Unrealized Gain (Loss) Recognized in AOCL on Derivatives, Net of Tax |  | Location of Loss Reclassified from AOCL |  |  |  |  |  | Loss Reclassified from AOCL
|  |  |  | Three Months Ended March 31, |  |  |  |  |  | Three Months Ended March 31,
|  |  |  |  |  | 2023 |  | 2022 |  |  |  |  |  |  |  | 2023 |  | 2022
Derivatives designated as cash flow hedge |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  |  |  |  |  | $ | — |  |  | $ | (0.1) |  |  | Other income, net |  |  |  |  |  | $ | — |  |  | $ | (0.1) |
Interest rate contracts |  |  |  |  |  | (17.2) |  |  | 21.7 |  |  | Interest expense |  |  |  |  |  | (5.8) |  |  | (1.0) |
Derivatives designated as net investment hedge |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  |  |  |  |  | (5.6) |  |  | 13.6 |  |  |  |  |  |  |  |  |  |  |
Total gain/(loss) |  |  |  |  |  | $ | (22.8) |  |  | $ | 35.2 |  |  |  |  |  |  |  |  | $ | (5.8) |  |  | $ | (1.1) |
The Company's designated derivative instruments are highly effective. As such, there were no gains or losses recognized immediately in income related to the hedge ineffectiveness or amounts excluded from hedge effectiveness testing for the three months ended March 31, 2023 and 2022, other than those related to the cross-currency swaps, noted below. The Company’s net investment hedges were designated with terms based on the spot rate of the EUR. Future changes in the components related to the spot change on the notional will be recorded as a component of Accumulated other comprehensive loss, net of tax until the hedged subsidiaries are substantially liquidated. All coupon payments are recorded in earnings and the initial value of excluded components currently recorded in Accumulated other comprehensive loss, net of tax as an unrealized translation adjustment are amortized to Interest expense over the remaining term of the swap. For the three months ended March 31, 2023 and 2022, the Company recognized as income $2.5 million and $2.6 million, respectively, in Interest expense as derivative amounts excluded from effectiveness testing. The following table provides the effect the derivative instruments not designated as cash flow hedging instruments had on Net income (loss) (in millions):
Derivatives Not Designated as Cash Flow Hedging Instruments |  | Location of Loss Recognized |  |  |  |  |  | Amount of Loss Recognized
|  |  |  |  |  | Three Months Ended March 31,
|  |  |  |  |  |  |  | 2023 |  | 2022
Foreign exchange contracts |  | Other income, net |  |  |  |  |  | $ | — |  |  | $ | (1.1) |

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI https://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
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