Derivatives

9 Months Ended

Sep. 30, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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 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.

Foreign Currency Risk Management

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 income (loss), net of tax and reclassified into earnings when the forecasted transaction affects earnings. Changes in the fair value of foreign exchange contracts not designated as hedges are recorded to Net income (loss) each period.

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 based on the spot rate of the EUR. Changes in the fair value of these hedges are deferred within the foreign currency translation component of Accumulated other comprehensive income (loss), net of tax and reclassified into earnings when the foreign investment is sold or substantially liquidated. Future changes in the components related to the spot change on the notional will be recorded in Other Comprehensive Income ("OCI") and remain there until the hedged subsidiaries are substantially liquidated. Gains and losses excluded from the assessment of hedge effectiveness are recognized in earnings (Interest expense) over the term of the swap. Gains and losses associated with the settlement of derivative instruments designated as a net investment hedge are classified within investing activities in the Consolidated Statement of Cash Flows. As of September 30, 2024 and December 31, 2023 the gross notional amount of outstanding cross-currency swaps contracts designated as a net investment hedge was €450 million.

Interest Rate Risk Management

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 pay-fixed, receive-variable interest rate swap contracts considered cash flow hedges are reported as a component of Accumulated other comprehensive income (loss), net of tax and reclassified into earnings when the forecasted transaction affects earnings. The terms of the interest rate swaps mirror the terms of the underlying debt, including timing of the payments and interest rates. As of September 30, 2024 and December 31, 2023 the gross notional amounts of outstanding interest rate swaps designated as a cash flow hedge were $692.2 million and $720.0 million, respectively.

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 and classified within operating activities in the Consolidated Statement of Cash Flows. As of September 30, 2024 and December 31, 2023 the gross notional amount of the interest rate swap designated as a fair value hedge was $173.4 million.

The following table presents the fair value of asset and liability derivatives and the respective balance sheet locations at September 30, 2024 (in millions):


	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedges:
Foreign exchange contracts	Accounts receivable, net	$	2.1	Accrued expenses and other current liabilities	$	6.9
Foreign exchange contracts	Other assets	—		Other liabilities	16.7
Interest rate contracts	Accounts receivable, net	—		Accrued expenses and other current liabilities	—
Interest rate contracts	Other assets	2.8		Other liabilities	2.2
Total derivatives designated as hedges		$	4.9		$	25.8

Derivatives not designated as hedges:
Foreign exchange contracts	Accounts receivable, net	1.8		Accrued expenses and other current liabilities	1.9
Total derivatives not designated as hedges		$	1.8		$	1.9
Total derivatives		$	6.7		$	27.7

The following table presents the fair value of asset and liability derivatives and the respective balance sheet locations at December 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	Accounts receivable, net	$	0.9	Accrued expenses and other current liabilities	$	—
Foreign exchange contracts	Other assets	—		Other liabilities	18.4

Interest rate contracts	Other assets	10.9		Other liabilities	4.9
Total derivatives designated as hedges		$	11.8		$	23.3

Derivatives not designated as hedges:
Foreign exchange contracts	Accounts receivable, net	1.7		Accrued expenses and other current liabilities	1.5
Total derivatives not designated as hedges		$	1.7		$	1.5
Total derivatives		$	13.5		$	24.8

Gains (losses) on derivatives designated as cash flow and net investment hedges recognized in other comprehensive income (loss) are summarized below (in millions) on a pretax basis:


Derivatives Designated in Hedging Relationships	Gains (Losses) Recognized in Accumulated Other Comprehensive Loss
	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Derivatives designated as cash flow hedge
Amounts included in assessment of effectiveness	$	(11.0)	$	13.5	$	2.8	$	27.5
Derivatives designated as net investment hedge
Amounts included in assessment of effectiveness	(18.7)		15.4		(6.1)		(10.9)
Total loss	$	(29.7)	$	28.9	$	(3.3)	$	16.6

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 and nine months ended September 30, 2024 or 2023, other than those related to the cross-currency swaps, noted below.

Gains (losses) on derivatives within the Condensed Consolidated Statement of Income (Loss) were as follows (in millions):


	Location of Gains (Losses)	Amount of Gains (Losses) Recognized
		Three Months Ended September 30,				Nine Months Ended September 30,
		2024		2023		2024		2023
Effect of cash flow hedges
Amount reclassified from Accumulated other comprehensive income (loss) to income	Interest expense	$	6.0	$	6.9	$	18.5	$	19.5
Effect of net investment hedges
Amount excluded from assessment of hedge effectiveness	Interest expense	1.8		3.3		5.6		8.0
Effect of fair value hedges
Hedged item	Interest expense	0.9		2.3		2.9		3.7
Derivative designated as hedges	Interest expense	(0.9)		(2.3)		(2.9)		(3.7)
Effect of non-designated hedges
Foreign exchange contracts	Other income	0.8		(5.1)		3.7		(6.2)
Total gain		$	8.6	$	5.1	$	27.8	$	21.3

Deferred gains of $9.3 million attributable to settled interest rate swaps designated as cash flow hedges are expected to be reclassified to Interest Expense over the next twelve months.