XML 51 R21.htm IDEA: XBRL DOCUMENT v3.22.4
Derivative Instruments and Hedging Activities
 12 Months Ended
Dec. 31, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Foreign Currency Option Contracts

We enter into foreign currency option contracts, both designated and non-designated, in order to manage the impact of fluctuations of foreign exchange on expected future purchases and related payables denominated in a foreign currency and to hedge the impact of fluctuations of foreign exchange on expected future sales and related receivables denominated in a foreign currency.

In September 2021, to economically hedge the foreign currency exposure associated with the planned payment of the euro-denominated purchase price for HRA Pharma, we entered into two non-designated currency option contracts with a total notional amount of $1.1 billion that were scheduled to mature in September 2022. In April 2022, due to market conditions, we unwound the two options and entered into two new undesignated options to economically hedge the purchase price for HRA Pharma for a total notional amount of $2.0 billion. All premiums associated with the HRA Pharma related currency options were settled in April 2022 for $37.1 million, and within Other (income) expense we recorded a $16.2 million and $20.9 million loss for the year ended December 31, 2022 and December 31, 2021, respectively.

Cross Currency Swaps

In a cross-currency swap, interest payments and principal in one currency are exchanged for principal and interest payments in a different currency. Interest payments are exchanged at fixed intervals during the life of the agreement. Changes in the fair value of cross-currency swaps designated as net investment hedges are recognized as a component of OCI as a foreign currency translation adjustment and are recognized in earnings only upon the sale or substantial liquidation of the hedged net investment. In assessing the effectiveness of these hedges, we use a method based on changes in spot rates to measure the impact of the foreign currency exchange rate fluctuations on both our foreign subsidiary net investment and the related swap. Under this method, changes in the fair value of the hedging instrument, other than those due to changes in the spot rate, are initially recorded in OCI as a translation adjustment. The excluded component is recognized on a systematic and rational basis by accruing the swap payments and receipts within Interest expense, net.

In April 2022, we entered into three fixed-for-fixed cross currency interest rate swaps designated as net investment hedges to hedge the EUR currency exposure of our investment in European operations.
On October 25, 2022, we cash settled the swaps for $98.8 million in proceeds. On the same day, we replaced the terminated instruments with three new fixed-for-fixed cross currency interest rate swaps at market rates and designated the instruments as net investment hedges on our investment in European operations. The following are the terms and notional amounts outstanding:

•$700 million notional amount outstanding from October 25, 2022 through December 15, 2024;
•$700 million notional amount outstanding from October 25, 2022 through March 15, 2026; and
•$100 million notional amount outstanding from October 25, 2022 through June 15, 2030.

In August 2019, we entered into a cross-currency swap designated as a net investment hedge to hedge the Euro currency exposure of our net investment in European operations. This agreement is a contract to exchange floating-rate Euro payments for floating-rate U.S. dollar payments through August 15, 2022. We terminated this cross-currency swap on January 28, 2022.

Interest Rate Swaps

Interest rate swap agreements are contracts to exchange floating rate for fixed rate payments (or vice versa) over the life of the agreement without the exchange of the underlying notional amounts. The notional amounts of the interest rate swap agreements are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. The differential paid or received on the interest rate swap agreements is recognized as an adjustment to interest expense.

In April 2022, to economically hedge the interest rate risk of the New Senior Secured Credit Facilities (as defined in Note 12), we entered into five variable-to-fixed interest rate swap agreements. Three of the interest rate swaps were designated as cash flow hedges to fix the interest rate on a substantial portion of the 2022 Term Loan B Facility (as defined in Note 12). The interest rate swaps cover an interest period ranging from June 1, 2022, through April 1, 2029, on notional balances that decline from $1.0 billion to $812.5 million over the term. The other two interest rate swaps were designated as cash flow hedges to fix the interest rate on a substantial portion of the 2022 Term Loan A Facility (as defined in Note 12). The interest rate swaps cover an interest period ranging from June 1, 2022, through April 1, 2027, on notional balances that decline from $487.5 million to $387.5 million over the term.

As a designated cash flow hedge, gains and losses will be deferred in AOCI and recognized within Interest expense, net when interest is paid on the New Senior Secured Credit Facilities. There were no active designated or non-designated interest rate swaps as of December 31, 2021.

Foreign Currency Forwards

In a foreign currency forward, a contract is written to exchange currencies at a fixed exchange rate at a future settlement date. We designate foreign currency forwards primarily as cash flow hedges to protect against foreign currency fluctuations of probable forecasted purchases and sales. The settlement dates of foreign currency forwards range from 1 to 60 months.
Notional amounts of foreign currency forward contracts were as follows (in millions):
Year Ended
December 31, 2022December 31, 2021
British Pound (GBP)$224.9 $135.8 
European Euro (EUR)61.7 232.6 
Swedish Krona (SEK)56.9 47.8 
Danish Krone (DKK)51.7 37.5 
United States Dollar (USD)51.7 22.9 
Chinese Yuan (CNH)34.4 37.7 
Polish Zloty (PLZ)25.2 21.0 
Canadian Dollar (CAD)24.9 29.0 
Mexican Peso (MXN)13.3 1.0 
Norwegian Krone (NOK)12.4 11.0 
Hungarian Forint (HUF)10.6 — 
Other (1)
25.9 11.8 
Total$593.6 $588.1 
(1) Number consists of various currencies notional amounts, none of which individually exceed $10.0 million in either year presented.
Effects of Derivatives on the Financial Statements
    
The below tables indicate the effects of all derivative instruments on the Consolidated Financial Statements. All amounts exclude income tax effects. The balance sheet location and gross fair value of our outstanding derivative instruments were as follows (in millions):
Year Ended
DerivativesBalance Sheet LocationDecember 31, 2022December 31, 2021
Designated derivative assets
Foreign currency forward contractsPrepaid expenses and other current assets$1.1 $3.5 
Interest rate swap agreementsPrepaid expenses and other current assets3.0 — 
Interest rate swap agreementsOther non-current assets47.5 — 
Foreign currency forward contractsOther non-current assets0.7 1.3 
Total designated derivatives$52.3 $4.8 
Non-designated derivatives
Foreign currency forward contractsPrepaid expenses and other current assets$2.4 $0.9 
Foreign currency optionsPrepaid expenses and other current assets— 5.0 
Total non-designated derivatives$2.4 $5.9 
Designated derivative liabilities
Foreign currency forward contractsOther accrued liabilities$4.2 $1.2 
Cross-currency swapOther accrued liabilities96.1 13.8 
Total designated derivatives$100.3 $15.0 
Non-designated derivatives
Foreign currency forward contractsOther accrued liabilities$1.0 $1.2 

The amounts of (income)/expense recognized in earnings related to our non-designated derivatives on the Consolidated Statements of Operations were as follows (in millions):
Year Ended
Non-Designated DerivativesIncome Statement LocationDecember 31, 2022December 31, 2021December 31, 2020
Foreign currency forward contracts
Other (income) expense, net$8.2 $(5.1)$(1.1)
Interest expense, net(2.0)1.3 3.5 
$6.2 (3.8)$2.4 
Foreign currency optionsOther (income) expense, net$16.2 $20.9 $— 
The following tables summarize the effect of derivative instruments designated as hedging instruments in Accumulated Other Comprehensive Income ("AOCI") (in millions):

Gain/(Loss)
Reclassified from AOCI into EarningsRelated to Amounts Excluded from Effectiveness Testing
Amount Recorded in OCI(1)
Classification AmountClassification Amount Recognized in Earnings on Derivatives
Year Ended December 31, 2022
Cash flow hedges
Treasury locks$— Interest expense, net$(0.1)Interest expense, net$— 
Interest rate swap agreements50.5 Interest expense, net4.6 Interest expense, net— 
Foreign currency forward contracts4.1 Net sales1.6 Net sales(0.5)
Cost of sales(4.8)Cost of sales(0.2)
Other (income) expense, net(1.4)
Total Cash flow hedges$54.6 $1.3 $(2.1)
Net investment hedges
Cross-currency swap$5.3 Interest expense, net$(17.2)
Year Ended December 31, 2021
Cash flow hedges
Treasury locks$— Interest expense, net$(0.1)Interest expense, net$— 
Interest rate swap agreements— Interest expense, net(1.8)Interest expense, net— 
Foreign currency forward contracts5.7 Net sales(2.5)Net sales— 
Cost of sales0.8 Cost of sales0.5 
Other Income/Expense0.7 
Total Cash flow hedges$5.7 $(3.6)$1.2 
Net investment hedges
Cross-currency swap$(20.1)Interest expense, net$(3.9)
Year Ended December 31, 2020
Cash flow hedges
Treasury locks$— Interest expense, net$(0.1)Interest expense, net$— 
Interest rate swap agreements— Interest expense, net(1.8)Interest expense, net— 
Foreign currency forward contracts5.0 Net sales0.2 Net sales0.1 
Cost of sales2.0 Cost of sales0.9 
Other Income/Expense0.5 
Total Cash flow hedges$5.0 $0.3 $1.5 
Net investment hedges
Cross-currency swap$(20.0)Interest expense, net$6.6 
Foreign currency forward contract$(11.2)Interest expense, net$(0.1)
Total Net investment hedges$(31.2)$6.5 
(1) Net gain of $8.5 million is expected to be reclassified out of AOCI into earnings during 2023.
The classification and amount of gain/(loss) recognized in earnings on fair value and hedging relationships were as follows (in millions):
Net SalesCost of SalesInterest Expense, netOther (Income) Expense, net
Year Ended December 31, 2022
Total amounts of income and expense line items presented on the Consolidated Statements of Operations in which the effects of fair value or cash flow hedges are recorded
$4,451.6 $2,996.2 $156.0 $53.1 
Gain (loss) on cash flow hedging relationships
Foreign currency forward contracts
Amount of gain or (loss) reclassified from AOCI into earnings$1.6 $(4.8)$— $— 
Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach$(0.5)$(0.2)$— $(1.4)
Treasury locks
Amount of gain or (loss) reclassified from AOCI into earnings$— $— $(0.1)$— 
Interest rate swap agreements
Amount of gain or (loss) reclassified from AOCI into earnings$— $— $4.6 $— 
Year Ended December 31, 2021
Total amounts of income and expense line items presented on the Consolidated Statements of Operations in which the effects of fair value or cash flow hedges are recorded
$4,138.7 $2,722.5 $125.0 $26.7 
Gain (loss) on cash flow hedging relationships
Foreign currency forward contracts
Amount of gain or (loss) reclassified from AOCI into earnings$(2.5)$0.8 $— $— 
Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach$— $0.5 $— $0.7 
Treasury locks
Amount of gain or (loss) reclassified from AOCI into earnings$— $— $(0.1)$— 
Interest rate swap agreements
Amount of gain or (loss) reclassified from AOCI into earnings$— $— $(1.8)$— 
Year Ended December 31, 2020
Total amounts of income and expense line items presented on the Consolidated Statements of Operations in which the effects of fair value or cash flow hedges are recorded$4,088.2 $2,593.3 $127.7 $16.3 
The effects of cash flow hedging:
Gain (loss) on cash flow hedging relationships
Foreign currency forward contracts
Amount of gain or (loss) reclassified from AOCI into earnings$0.2 $2.0 $— $— 
Amount excluded from effectiveness testing recognized using a systematic and rational amortization approach$0.1 $0.9 $— $0.5 
Treasury locks
Amount of gain or (loss) reclassified from AOCI into earnings$— $— $(0.1)$— 
Interest rate swap agreements
Amount of gain or (loss) reclassified from AOCI into earnings$— $— $(1.8)$— 
Net foreign exchange losses totaled $59.9 million, $26.8 million, and $0.3 million for the years ended December 31, 2022, December 31, 2021, and December 31, 2020, respectively. Therein, 2022 and 2021 included $16.2 million and $20.9 million of loss, respectively, for the change in fair value of the option contracts to hedge the foreign currency exposure of the euro-denominated purchase price for HRA Pharma.