XML 45 R16.htm IDEA: XBRL DOCUMENT
v3.21.1

Derivatives | 3 Months Ended
--- | ---
Mar. 31, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives | Derivatives We utilize derivative instruments, including interest rate swap agreements and foreign currency hedging contracts, to manage our exposure to interest rate risk and foreign currency fluctuations. We only hold such instruments for economic hedging purposes, not for speculative or trading purposes. Our derivative instruments are transacted only with highly-rated institutions, which reduces our exposure to credit risk in the event of nonperformance. Interest Rate Swaps We are exposed to interest rate risk associated with fluctuations in interest rates on the floating-rate Term Loan Facility. The objective in using interest rate derivatives is to manage our exposure to interest rate movements. To accomplish this objective, we have entered into interest rate swap agreements as part of our interest rate risk management strategy. Interest rate swaps involve the receipt of variable amounts from a counterparty in exchange for the company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. On a quarterly basis, we net settle with the counterparty for the difference between the fixed rate specified in each swap agreement and the variable rate based upon the three-month LIBOR as applied to the notional amount of the swap. On January 9, 2020, we designated certain of our swaps as cash flow hedges. On the designation date, the cash flow hedges were in a $39.9 million liability position. The cash flow hedges were expected to be highly effective on the designation date and, on a quarterly basis, we performed retrospective and prospective regression assessments to determine whether the cash flow hedges continue to be highly effective. As long as the cash flow hedges are highly effective, changes in fair value are recorded to "Accumulated other comprehensive income (loss)" in the Consolidated Balance Sheets and reclassified to "Interest expense" in the period when the underlying transaction affects earnings. The income tax effects of cash flow hedges are released from "Accumulated other comprehensive income (loss)" in the period when the underlying transaction affects earnings. Any stranded income tax effects are released from “Accumulated other comprehensive income (loss)” into “Benefit (provision) for income taxes” under the portfolio a pproach. As of December 31, 2020, all of our cash flow hedges were highly effective. During the three months ended March 31, 2021, we completed a series of transactions to modify our interest rate swap positions as follows: (i) All the interest rate swaps outstanding as of December 31, 2020, as shown in the table below, with the exception of the agreement that matured on February 3, 2021, were de-designated as cash flow hedges on January 31, 2021, (ii) on February 12, 2021, we entered into a $900.0 million receive-fixed interest rate swap which was designed to offset the terms of the remaining two December 2016 swaps, and (iii) on February 12, 2021, we terminated all December 2018 swaps and entered into a $1.35 billion pay-fixed interest rate swap, effectively blending the liability position of our existing interest rate swap agreements into the new swap and extending the term of our hedged position to February 2026. The amount remaining in “Accumulated other comprehensive income (loss)" for the de-designated December 2016 and December 2018 swaps at the de-designation date was app roximately $51.6 million, and will be amortized as an increase to "Interest expense" over the effective period of the original swap agreements. The new receive-fixed interest rate swap qualifies as a hybrid instrument in accordance with ASC 815, Derivatives and Hedging, consisting of a loan and an embedded derivative for which the fair value option has been elected. This $900.0 million swap will remain undesignated to economically offset the now undesignated December 2016 swaps. This new swap and the December 2016 swaps mature on February 3, 2022. Cash settlements related to this receive-fixed interest rate swap will offset and are classified as operating activities in the Consolidated Statements of Cash Flows. The new pay-fixed interest rate swap also qualifies as a hybrid instrument in accordance with ASC 815, Derivatives and Hedging, consisting of a loan and an embedded at-market derivative that was designated as a cash flow hedge. The loan is accounted for at amortized cost over the life of the swap while the embedded at-market derivative is accounted for at fair value. This new $1.35 billion swap is indexed to three-month LIBOR and will be net settled on a quarterly basis with the counterparty for the difference between the fixed rate of 2.3820% and the variable rate based upon three-month LIBOR (subject to a floor of 0.75%) as applied to the notional amount of the swap. In connection with the transactions discussed above, no cash was exchanged between us and the counterparty. The liability of the terminated interest rate swaps as well as the inception value of the receive-fixed interest rate swap was blended into the new pay-fixed interest rate swap. The cash flows related to the portion treated as debt will be classified as financing activities in the Consolidated Statements of Cash Flows while the portion treated as an at-market derivative will be classified as operating activities. As of March 31, 2021, the cash flow hedge was highly effective. The key terms of interest rate swaps outstanding are presented below:
Effective Date |  | Fixed Rate Paid (Received) |  | December 31, 2020 |  | March 31, 2021 |  |
Notional Amount (in millions) |  | Status |  | Notional Amount (in millions) |  | Status |  | Maturity Date
Entered into December 2016: |  |  |  |  |  |  |  |  |  |
February 3, 2017 |  | 1.7625% |  | $ | 150.0 |  |  | Active |  | $ | — |  |  | Matured |  | February 3, 2021
February 3, 2017 |  | 1.9040% |  | 450.0 |  |  | Active |  | 450.0 |  |  | Active |  | February 3, 2022
February 3, 2017 |  | 1.9040% |  | 450.0 |  |  | Active |  | 450.0 |  |  | Active |  | February 3, 2022
Entered into December 2018: |  |  |  |  |  |  |  |  |  |
February 3, 2019 |  | 2.7490% |  | 150.0 |  |  | Active |  | — |  |  | Terminated |  | November 3, 2023
February 3, 2020 |  | 2.7350% |  | 150.0 |  |  | Active |  | — |  |  | Terminated |  | November 3, 2023
February 3, 2021 |  | 2.7360% |  | 150.0 |  |  | Active |  | — |  |  | Terminated |  | November 3, 2023
February 3, 2022 |  | 2.7800% |  | 900.0 |  |  | Active |  | — |  |  | Terminated |  | November 3, 2023
Entered into February 2021: |  |  |  |  |  |  |  |  |  |
February 3, 2021 |  | (1.9040)% |  | — |  |  | N/A |  | (900.0) |  |  | Active |  | February 3, 2022
February 9, 2021 |  | 2.3820% |  | — |  |  | N/A |  | 1,350.0 |  |  | Active |  | February 9, 2026
Total |  |  |  | $ | 2,400.0 |  |  |  |  | $ | 1,350.0 |  |  |  |  |
Our interest rate swap agreements, excluding the portion treated as debt, are recognized at fair value in the Consolidated Balance Sheets and are valued using pricing models that rely on market observable inputs such as yield curve data, which are classified as Level 2 inputs within the fair value hierarchy. Foreign Currency Hedging Contracts The majority of our customers are invoiced, and the majority of our expenses are paid, by us or our subsidiaries in the functional currency of our company or our subsidiaries, respectively. We also have exposure to foreign currency transaction gains and losses as the result of certain receivables due from our foreign subsidiaries. As such, the results of operations and cash flows of our foreign subsidiaries are subject to fluctuations in foreign currency exchange rates. The objective of our foreign currency hedging contracts is to manage our exposure to foreign currency movements. To accomplish this objective, we may enter into foreign currency forward contracts and collars. A forward contract is an agreement to buy or sell a quantity of a currency at a predetermined future date and at a predetermined exchange rate. A collar is a strategy that uses a combination of a purchased put option and a sold call option with equal premiums to hedge a portion of anticipated cash flows, or to limit possible gains or losses on an underlying asset or liability to a specific range. The put and call options have identical notional amounts and settlement dates. In November 2019, we entered into two foreign currency net-zero cost collar contracts with an aggregate notional amount of £100 million and a maturity date of November 30, 2020. Under the terms of the contracts, the British pound sterling to U.S. dollar exchange rate floats between 1.2375 and 1.3475. On March 26, 2020, we settled one of these contracts, with an aggregate notional amount of £50 million, and we received a final net payment of $1.9 million and on November 19, 2020, we settled the remaining contract, with an aggregate notional amount of £50 million, and we made a final net payment of $0.2 million. During 2020, we entered into a series of foreign currency contracts to manage our exposure to movements in the British pound sterling, Euro, and Mexican peso. These contracts had three-month terms and settlement dates throughout the year. None of these contracts settled during the three months ended March 31, 2020. As of December 31, 2020, there was no notional amount outstanding related to these contracts. During the fourth quarter of 2020, we entered into two foreign currency forward contracts. Under the terms of these contracts, on November 30, 2021, we will sell a total of £80 million at an average rate of 1.3388 British pound sterling to U.S. dollar and receive $107.1 million. These contracts are recognized at fair value in the Consolidated Balance Sheets and are valued using pricing models that rely on market observable inputs such as current exchange rates, which are classified as Level 2 inputs within the fair value hierarchy. We have not designated these contracts as cash flow hedges for accounting purposes, therefore, all changes in fair value are recorded in "Other income (expense), net." Fair Values of Derivatives on the Consolidated Balance Sheets The fair values of our derivatives and their location on the Consolidated Balance Sheets as of December 31, 2020 and March 31, 2021 were as follows:
|  | December 31, 2020 |  | March 31, 2021
(In millions) |  | Assets |  | Liabilities |  | Assets |  | Liabilities
Derivatives not designated as hedging instruments | Location |  |  |  |  |  |  |
Interest rate swaps | Other current assets (1) | $ | — |  |  | $ | — |  |  | $ | 13.1 |  |  | $ | — |
Interest rate swaps | Other current liabilities | — |  |  | — |  |  | — |  |  | 13.0 |
Foreign currency contracts | Other current liabilities | — |  |  | 1.7 |  |  | — |  |  | 3.0 |
Total |  | $ | — |  |  | $ | 1.7 |  |  | $ | 13.1 |  |  | $ | 16.0 |
Derivatives designated as hedging instruments | Location |  |  |  |  |  |  |
Interest rate swaps | Other non-current assets | $ | — |  |  | $ | — |  |  | $ | 17.9 |  |  | $ | — |
Interest rate swaps | Other current liabilities (2) | — |  |  | 22.6 |  |  | — |  |  | 21.5 |
Interest rate swaps | Other non-current liabilities (3) | — |  |  | 64.4 |  |  | — |  |  | 69.3 |
Total |  | $ | — |  |  | $ | 87.0 |  |  | $ | 17.9 |  |  | $ | 90.8 |
(1) The entire balance as of March 31, 2021 is comprised of the receive-fixed interest rate swap for which the fair value option has been elected. (2) The balance as of March 31, 2021 includes $17.3 million related to the financing component of the pay-fixed interest rate swap. (3) The entire balance as of March 31, 2021 is comprised of the financing component of the pay-fixed interest rate swap. For financial statement presentation purposes, we do not offset assets and liabilities under master netting arrangements and all amounts above are presented on a gross basis. The following table, however, is presented on a net asset and net liability basis:
| December 31, 2020 |  | March 31, 2021
(In millions) | Gross Amounts on Balance Sheet |  | Effect of Counter-Party Netting |  | Net Amounts |  | Gross Amounts on Balance Sheet |  | Effect of Counter-Party Netting |  | Net Amounts
Assets |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 31.0 |  |  | $ | (31.0) |  |  | $ | — |
Total | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 31.0 |  |  | $ | (31.0) |  |  | $ | — |
Liabilities |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | $ | 87.0 |  |  | $ | — |  |  | $ | 87.0 |  |  | $ | 103.8 |  |  | $ | (31.0) |  |  | $ | 72.8 |
Foreign currency contracts | 1.7 |  |  | — |  |  | 1.7 |  |  | 3.0 |  |  | — |  |  | 3.0 |
Total | $ | 88.7 |  |  | $ | — |  |  | $ | 88.7 |  |  | $ | 106.8 |  |  | $ | (31.0) |  |  | $ | 75.8 |
Effect of Derivatives on the Consolidated Statements of Comprehensive Loss The effect of our derivatives and their location on the Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2020 and 2021 was as follows:
|  |  |  | Three Months Ended March 31,
(In millions) |  |  |  |  |  | 2020 |  | 2021
Derivatives not designated as hedging instruments | Location |  |  |  |  |  |  |
Interest rate swaps | Interest expense |  |  |  |  | $ | (3.2) |  |  | $ | (4.6) |
Foreign currency contracts | Other expense, net |  |  |  |  | 3.3 |  |  | (1.3) |
Derivatives designated as hedging instruments | Location |  |  |  |  |  |  |
Interest rate swaps | Interest expense |  |  |  |  | $ | 0.5 |  |  | $ | (2.3) |
Interest expense was $72.0 million and $52.6 million for the three months ended March 31, 2020 and 2021, respectively. As of March 31, 2021, the amount of cash flow hedge losses included within "Accumulated other comprehensive income (loss)" that is expected to be reclassified as an increase to "Interest expense" over the next 12 months is approximately $24.0 million. See Note 11, "Accumulated Other Comprehensive Income (Loss)," for information regarding changes in fair value of our derivatives designated as hedging instruments. Credit-risk-related Contingent Features We have agreements with interest rate swap counterparties that contain a provision whereby if we default on any of our material indebtedness, then we could also be declared in default of our interest rate swap agreements. As of March 31, 2021, our interest rate swap agreements with an aggregate fair value of $103.8 million were in a net liability position. However, if we were in default, our master netting arrangements with certain of our interest rate swap counterparties contain provisions which could result in net settlement of all outstanding agreements.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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 http://asc.fasb.org/topic&trid=2229140 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration