Derivatives and Hedging

12 Months Ended

Dec. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and HedgingWe are exposed to changes in foreign currency exchange rates, primarily relating to intercompany debt and certain forecasted sales transactions denominated in currencies other than the U.S. dollar, as well as to changes in interest rates as a result of our variable-rate debt. Consequently, we use derivative financial instruments to manage and mitigate such risk. We do not enter into derivative transactions for speculative or trading purposes.

We utilize the following derivative instruments designated as cash flow hedges:

•foreign exchange forward contracts to hedge certain forecasted sales transactions denominated in foreign currencies;

•cross-currency swaps used to manage variability due to movements in foreign currency exchange rates related to a Euro-denominated intercompany loan; and

•pay-fixed rate, receive-floating rate interest rate swaps to effectively convert portions of our variable-rate debt to fixed.

We also utilize cross-currency swaps designated as net investment hedges to mitigate the risk associated with exchange rate fluctuations on our net investment in certain foreign operations.

The following table summarizes our outstanding derivative instruments on a gross basis, all of which are considered Level 2 financial instruments:


	Notional Amount				Fair Value of Derivative Assets(2)				Fair Value of Derivative Liabilities(2)
	December 31, 2022		December 31, 2021		December 31, 2022		December 31, 2021		December 31, 2022		December 31, 2021


Cash flow hedges:
Foreign exchange forward contracts	$	364.7	$	360.3	$	9.4	$	5.6	$	2.0	$	1.0
Cross-currency swaps(1)	549.7		1,346.8		15.8		—		2.2		80.9
Interest rate swaps	1,980.5		2,001.2		173.0		24.7		—		7.6
Net investment hedges:
Cross-currency swaps(1)	704.6		—		20.3		—		0.7		—
Total hedges	$	3,599.5	$	3,708.3	$	218.5	$	30.3	$	4.9	$	89.5

_________________________________

(1) The notional values of the cross-currency swap have been translated from Euros to U.S. dollars at the foreign currency rates in effect at December 31, 2022 and 2021 of approximately 1.07 and 1.14, respectively.

(2) In our balance sheets, all derivative assets are recorded within prepaid expenses and other current assets and all derivative liabilities are recorded within accrued expenses and other current liabilities.

The following table summarizes the effect of our hedging relationships on AOCI:


	Unrealized Gains (Losses) Recognized in Other Comprehensive Income (Loss)
	Year Ended December 31,
	2022		2021		2020
Cash flow hedges:

Foreign exchange forward contracts(1)	$	24.3	$	16.3	$	(17.6)
Cross-currency swap	54.0		(15.5)		16.2
Interest rate swaps	158.3		48.4		(4.9)
Net investment hedges:
Cross-currency swaps	20.3		—		—
Total hedges	$	256.9	$	49.2	$	(6.3)

_________________________________

(1) Amounts include gains and losses realized upon contract settlement but not yet recognized into earnings from AOCI.

The following table summarizes the locations and amounts of gains (losses) recognized within earnings related to our hedging relationships:


	Year Ended December 31,
	2022						2021						2020
	Revenue		Interest Expense		Other Income (Expense), Net		Revenue		Interest Expense		Other Income (Expense), Net		Revenue		Interest Expense		Other Income (Expense), Net
Cash flow hedges:
Foreign exchange forward contracts:
Reclassified from AOCI into income	$	5.3	$	—	$	—	$	(8.9)	$	—	$	—	$	2.7	$	—	$	—
Cross-currency swaps:
Reclassified from AOCI into income(1)	—		14.9		41.5		—		27.3		100.6		—		28.9		(120.4)
Interest rate swaps:
Reclassified from AOCI into income	—		(5.0)		—		—		(35.0)		—		—		(25.6)		—
Net investment hedges:
Cross-currency swaps:
Reclassified from AOCI into income	—		11.3		—		—		—		—		—		—		—
Total hedges	$	5.3	$	21.2	$	41.5	$	(8.9)	$	(7.7)	$	100.6	$	2.7	$	3.3	$	(120.4)

_________________________________

(1) The amounts reflected in other income (expense), net include $(41.3) million, $(101.8) million and $119.3 million reclassified from AOCI to offset the earnings impact of the remeasurement of the Euro-denominated intercompany loan hedged by the cross-currency swap during 2022, 2021 and 2020, respectively.

As of December 31, 2022, we estimate that $87.3 million of net deferred gains related to our cash flow hedges will be recognized in earnings over the next 12 months. No amounts were excluded from our effectiveness testing during any of the periods presented.

Risk Management Strategies

Foreign Exchange Forward Contracts

From time-to-time, we may enter into foreign exchange forward contracts with financial institutions to hedge certain forecasted sales transactions denominated in foreign currency. We designate these forward contracts as cash flow hedges, which are recognized as either assets or liabilities at fair value. At December 31, 2022, all such contracts had maturities of 18 months or less.

Cross-Currency Swap Contract

In April 2017, in order to manage variability due to movements in foreign currency rates related to a Euro-denominated intercompany loan, we entered into five-year cross-currency swaps. In March 2022, we entered into a transaction to extend the maturity of these swaps to August 31, 2027. We and the existing counterparties executed cancellation agreements to terminate all rights, obligations and liabilities associated with the original swaps. On the modification date, the existing cash flow hedging relationships were de-designated and new hedging relationships incorporating the terms of the new swaps (the 2022 Cross-Currency Swaps) were designated as either cash flow hedging relationships or net investment hedging relationships. The 2022 Cross-Currency Swaps had an aggregate amortizing notional amount of €1,184.2 million at inception (approximately $1,262.5 million). The swaps designated as cash flow hedging relationships convert the 3.00% fixed rate Euro-denominated interest and principal receipts on the intercompany loan into U.S. dollar interest and principal receipts at a fixed rate of 4.81%. The swaps designated as net investment hedging relationships hedge the foreign currency exposure of our net investment in certain Euro denominated functional currency subsidiaries. Pursuant to the contracts, the Euro notional value will be exchanged for the U.S. dollar notional value at maturity.

Interest Rate Swap Contracts

In April 2017, we entered into a five-year pay-fixed rate, receive-floating rate interest rate swap arrangement to effectively convert a portion of the variable-rate borrowings under the 2029 Term Loans to a fixed rate of 5.44%. In March 2022, we entered into a transaction to extend the maturity of the swaps to August 31, 2027. We and the existing counterparties executed cancellation agreements to terminate all rights, obligations and liabilities associated with the original swaps. On the modification date, the existing cash flow hedging relationships were de-designated and new hedging relationships incorporating the terms of the new interest rate swaps (the 2022 Interest Rate Swaps) were designated. The 2022 Interest Rate Swaps, which had an amortizing notional amount of $1,262.5 million at inception, serve to convert a portion of the variable-rate borrowings under the 2029 Term Loans to a fixed rate of 4.81%. In November 2022, in conjunction with the Credit Facility refinancing discussed in Note 10, we terminated these swaps and entered into new SOFR-based interest rate swaps. This modification impacted no critical terms other than the reference rate change from LIBOR to SOFR and thus had no impact on our hedging relationship or financial results.

In August 2020, in conjunction with the issuance of the 2027 Term Loans, we entered into seven-year pay-fixed rate, receive-floating rate interest rate swaps to effectively convert the variable one-month LIBOR interest rate on the 2027 Term Loans borrowings to a fixed rate of 0.705%. These interest rate swaps, which mature on August 10, 2027, had an aggregate notional amount of $750.0 million at inception.

The objective of these arrangements, which are designated as cash flow hedges and recognized as assets or liabilities at fair value, is to manage the variability of cash flows in the interest payments related to the portion of the variable-rate debt designated as being hedged. The unrealized gains and losses on the swaps are included in AOCI and will be recognized in earnings within or against interest expense when the hedged interest payments are accrued each month.