Derivative Financial Instruments and Hedging Activities |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Financial Instruments and Hedging Activities | Note 8: Derivative Financial Instruments and Hedging Activities The Company is exposed to certain risks arising from both business operations and economic conditions, including interest rate risk and foreign exchange risk. To mitigate the impact of interest rate and foreign exchange risk, the Company enters into derivative financial instruments. The Company maintains the majority of its overall interest rate exposure on floating rate borrowings to a fixed-rate basis, primarily with interest rate swap agreements. The Company manages exposure to foreign exchange fluctuations primarily through short-term forward contracts. There have been no significant changes to the interest rate and foreign exchange risk management objectives from those disclosed in the Company’s audited Consolidated Financial Statements for the year ended December 31, 2022. Interest Rate Derivative Instruments In November 2022, the Company elected to terminate and monetize its five interest rate swap agreements designated as cash flow hedges with a notional value of $1.4 billion. Upon termination, the Company received a cash settlement of $62.9 million in exchange for its derivative asset. Amounts relating to these terminated derivative instruments recorded in Accumulated other comprehensive loss will be amortized into earnings over the remaining life of the original agreements, which were scheduled to expire on August 21, 2025. Additionally, in November 2022, the Company entered into three new interest rate swap agreements for a notional amount of $1.4 billion with an effective date of October 31, 2022, expiring on August 21, 2025. The underlying hedged transaction related to these interest rate swaps referenced a LIBOR rate. The Company concurrently designated these derivative instruments as cash flow hedges. As part of the Company’s transition from a LIBOR benchmark to a Secured Overnight Financing Rate (“SOFR”) benchmark, these three interest rate swaps were terminated, effective June 30, 2023. Amounts relating to these terminated derivative instruments recorded in Accumulated other comprehensive loss will be amortized into earnings over the remaining life of the original agreements. Concurrently, the Company entered into three new interest rate swap agreements for a notional amount of $1.4 billion with an effective date of June 30, 2023, expiring on August 21, 2025. The underlying hedged transaction related to these interest rate swaps references a SOFR rate. The Company concurrently designated these derivative instruments as cash flow hedges. In May 2023, the Company entered into six new interest rate swap agreements for a notional amount of $550.0 million with an effective date of May 31, 2023, expiring on May 31, 2028. The underlying hedged transaction related to these interest rate swaps references a SOFR rate. The Company concurrently designated these derivative instruments as cash flow hedges. As of September 30, 2023, the Company's active interest rate hedging instruments consisted of nine interest rate swap agreements designated as cash flow hedges. The Company's hedge instrument balances as of September 30, 2023 related solely to these interest rate swaps and are further described below. The Company records changes in the fair value of derivatives designated and qualifying as cash flow hedges in Accumulated other comprehensive loss in the Condensed Consolidated Balance Sheets and subsequently reclassifies the changes into earnings in the period that the hedged forecasted transaction affects earnings. As of September 30, 2023 and December 31, 2022, there were $76.2 million and $48.7 million in pre-tax gains, respectively, included in Accumulated other comprehensive loss related to these agreements, which will be reclassified to Interest expense, net of interest income as interest payments are made in accordance with the 2018 Credit Agreement; refer to Note 9: Long-Term Debt and Other Borrowings for discussion of the 2018 Credit Agreement (which is defined therein). During the next twelve months, the Company estimates that pre-tax gains of $44.3 million will be reclassified to Interest expense, net of interest income in the Condensed Consolidated Statements of Operations. Non-Designated Foreign Exchange Derivative Instruments Additionally, the Company enters into short-term forward contracts to mitigate the risk of fluctuations in foreign currency exchange rates that would adversely impact some of the Company’s foreign currency denominated transactions. Hedge accounting was not elected for any of these contracts. As such, changes in the fair values of these contracts are recorded directly in earnings. The Company recognized realized losses of $4.8 million and $14.6 million, offset by unrealized gains of $0.6 million and $1.0 million during the three and nine months ended September 30, 2023, respectively. The Company recognized realized losses of $2.7 million and $12.5 million, offset by unrealized gains of $1.6 million and $2.5 million, during the three and nine months ended September 30, 2022, respectively. As of September 30, 2023 and December 31, 2022, the Company had 24 and 25 foreign currency exchange forward contracts outstanding covering a notional amount of $1,238.3 million and $886.6 million, respectively. As of September 30, 2023 and December 31, 2022, the Company had not posted, and did not hold, any collateral related to these agreements. The following table presents the fair value of derivatives as of September 30, 2023 and December 31, 2022 (in millions):
The fair value of interest rate swaps is included within Other non-current assets and Other non-current liabilities as of September 30, 2023 and December 31, 2022, respectively, in the Condensed Consolidated Balance Sheets. The fair value of foreign currency forward contracts is included in Prepaid expenses and other current assets and Other current liabilities in the Condensed Consolidated Balance Sheets, respectively. The Company does not net derivatives in the Condensed Consolidated Balance Sheets. The following table presents the effect of derivatives designated as cash flow hedges in the Condensed Consolidated Statements of Operations for the three months ended September 30, 2023 and 2022 (in millions):
(1) Amount is net of deferred tax expense of $5.1 million and $0.0 million for the three months ended September 30, 2023 and 2022, respectively. Gains of $10.5 million and losses of $2.2 million were reclassified into earnings during the three months ended September 30, 2023 and 2022, respectively, related to interest rate hedges and were recognized in Interest expense, net of interest income in the Condensed Consolidated Statements of Operations. The following table presents the effect of derivatives designated as hedges in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2023 and 2022 (in millions):
(1) Amount is net of deferred tax expense of $8.8 million and $0.0 million for the nine months ended September 30, 2023 and 2022, respectively. Gains of $24.5 million and losses of $19.1 million were reclassified into earnings during the nine months ended September 30, 2023 and 2022, respectively, related to interest rate hedges and were recognized in Interest expense, net of interest income in the Condensed Consolidated Statements of Operations.
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