Derivatives and Hedging Activity

12 Months Ended

Dec. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

16. Derivatives and Hedging Activity

We are exposed to market risks, including changes in foreign currency exchange rates and interest rates. To manage the risk related to these exposures, we enter into various derivative instruments that reduce these risks by creating offsetting exposures. We generally do not enter into derivative transactions for trading or speculative purposes.

Foreign Exchange Risk Management

We are exposed to foreign exchange risk when we earn revenues, pay expenses, or enter into monetary intercompany transfers denominated in a currency that differs from our functional currency, or other transactions that are denominated in a currency other than our functional currency. We use foreign exchange derivatives, typically forward contracts and options, to reduce our overall exposure to the effects of currency fluctuations on cash flows. These exposures are hedged, on average, for less than three years.

Interest Rate Risk Management

We enter into various long-term debt agreements. We use interest rate derivatives, typically swaps, to reduce our exposure to the effects of interest rate fluctuations on the forecasted interest rates for up to three years into the future.

We have not received or pledged any collateral related to derivative arrangements at December 31, 2022.

The notional and fair values of derivatives designated as hedging instruments are as follows at December 31, 2022 and 2021 (in millions):


			Derivative Assets			Derivative Liabilities
	Notional		Balance Sheet	Fair		Balance Sheet	Fair
Instrument	Amount		Classification	Value		Classification	Value
At December 31, 2022
Interest rate contracts	$	950.0	Other current assets	$	56.5	Accrued compensation and	$	—
			Other noncurrent assets		56.6	other current liabilities
						Other noncurrent liabilities		—
Foreign exchange contracts (1)		113.0	Other current assets		0.8	Accrued compensation and		18.5
					14.5	other current liabilities
			Other noncurrent assets		—	Other noncurrent liabilities		27.0
Total	$	1,063.0		$	128.4		$	45.5
At December 31, 2021
Interest rate contracts	$	1,000.0	Other current assets	$	4.8	Accrued compensation and	$	1.3
			Other noncurrent assets		3.4	other current liabilities
						Other noncurrent liabilities		11.5
Foreign exchange contracts (1)		17.3	Other current assets		4.3	Accrued compensation and		1.3
						other current liabilities
			Other noncurrent assets		4.3	Other noncurrent liabilities		7.2
Total	$	1,017.3		$	16.8		$	21.3

(1)

Included within foreign exchange contracts at December 31, 2022 were $948.8 million of call options offset with $948.8 million of put options, and $12.4 million of buy forwards offset with $125.4 million of sell forwards. Included within foreign exchange contracts at December 31, 2021 were $483.8 million of call options offset with $483.8 million of put options, and $10.5 million of buy forwards offset with $27.9 million of sell forwards.

Fair values of these hedge contracts are based on observable and unobservable inputs. Observable inputs include all of the following: quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example: interest rates and yield curves observable at commonly quoted intervals, implied volatilities, credit spreads) and market-corroborated inputs. Unobservable inputs are used to measure fair value to the extent that relevant observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The effect of cash flow hedge accounting on accumulated other comprehensive loss were as follows (in millions):


Instrument	Amount of Gain (Loss) Recognized in Accumulated Other Comprehensive Loss (1)			Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings			Amount of Gain (Loss) Recognized in Earnings Related to Amount Excluded from Effectiveness Testing			Statement of Earnings Classification
Year ended December 31, 2022
Interest rate contracts	$	179.3		$	(1.2	)	$	—		Interest expense
Foreign exchange contracts		(26.8	)		6.3			(0.1	)	Commission revenue
					(1.1	)		1.9		Compensation expense
					(0.8	)		1.4		Operating expense
Total	$	152.5		$	3.2		$	3.2
Year ended December 31, 2021
Interest rate contracts	$	35.8		$	(1.1	)	$	—		Interest expense
Foreign exchange contracts		(13.5	)		(3.3	)		—		Commission revenue
					(0.8	)		1.0		Compensation expense
					(0.6	)		0.7		Operating expense
Total	$	22.3		$	(5.8	)	$	1.7

(1)

During 2022, the amount excluded from the assessment of hedge effectiveness for our foreign exchange contracts recognized in accumulated other comprehensive loss was a gain of $0.9 million.

We estimate that approximately $29.4 million of pretax loss currently included within accumulated other comprehensive income will be reclassified into earnings in the next twelve months.