Fair value of financial instruments

6 Months Ended

Jun. 30, 2021

Investments in Marketable Securities

We have investments in mutual funds and equity securities that are carried at fair value in the financial statements. For these investments, fair value was based on quoted market prices, which we have categorized as a Level 1 valuation.

Fixed-Rate Debt

The fair value and carrying value of our material fixed-rate debt is as follows:


(In millions)	June 30, 2021		December 31, 2020

$600 million Senior unsecured notes
Carrying value	$	600.0	600.0
Fair value	638.3		640.9

$400 million Senior unsecured notes
Carrying value	400.0		400.0
Fair value	424.8		426.8

The fair value estimates of our senior unsecured notes was based on the present value of future cash flows, discounted at rates for similar instruments at the measurement date, which we have categorized as a Level 3 valuation.

Forward and Swap Contracts

We have outstanding foreign currency forward and swap contracts to hedge transactional risks associated with foreign currencies. At June 30, 2021, the notional value of our short term outstanding foreign currency forward and swap contracts was $504 million, with average maturities of approximately one month. These foreign currency forward and swap contracts primarily offset exposures in the euro and the British pound and are not designated as hedges for accounting purposes. Accordingly, changes in their fair value are recorded immediately in earnings. At June 30, 2021, the fair value of our short term foreign currency contracts was a net asset of approximately $5.9 million, of which $6.4 million was included in prepaid expenses and other and $0.5 million was included in accrued liabilities on the condensed consolidated balance sheet. At December 31, 2020, the fair value of these foreign currency contracts was a net asset of approximately $2.4 million, of which $3.5 million was included in prepaid expenses and other and $1.1 million was included in accrued liabilities on the condensed consolidated balance sheet.

Amounts under these contracts were recognized in other operating income (expense) and in interest and other nonoperating income and expense as follows:


	Three Months Ended June 30,			Six Months Ended June 30,
(In millions)	2021		2020	2021		2020

Derivative instrument gains (losses) included in other operating income (expense)	$	(2.3)	2.6	$	8.2	3.9

Derivative instrument losses included in other nonoperating income (expense)(a)	—		(0.4)	—		(8.1)

(a)Represents losses on foreign currency forward contracts related to 2020 acquisition of business operations from G4S.

In the first quarter of 2019, we entered into a long term cross currency swap contract to hedge exposure in Brazilian real, which is designated as a cash flow hedge for accounting purposes. At June 30, 2021, the notional value of this long term contract was $87 million with a weighted-average maturity of 1.6 years. At June 30, 2021, the fair value of the long term cross currency swap contract was a $21.7 million net asset, of which $3.2 million is included in prepaid expenses and other and $18.5 million is included in other assets on the condensed consolidated balance sheet. At December 31, 2020, the fair value of the long term cross currency swap contract was a $23.6 million net asset, of which a $3.2 million asset was included in prepaid and other assets and $20.4 million asset was included in other assets on the condensed consolidated balance sheet.

Amounts under this contract were recognized in other operating income (expense) to offset transaction gains or losses and in interest expense as follows:


	Three Months Ended June 30,			Six Months Ended June 30,
(In millions)	2021		2020	2021		2020

Derivative instrument gains (losses) included in other operating income (expense)	$	(11.7)	3.7	$	(5.6)	29.8

Offsetting transaction gains (losses)	11.7		(3.7)	5.6		(29.8)

Derivative instrument losses included in interest expense	(0.5)		(0.3)	(0.8)		(1.0)

Net derivative instrument gains (losses)	(12.2)		3.4	(6.4)		28.8

In the first quarter of 2019, we entered into ten interest rate swaps that hedge cash flow risk associated with changes in variable interest rates and that are designated as cash flow hedges for accounting purposes. At June 30, 2021, the notional value of these contracts was $400 million with a remaining weighted-average maturity of 1.3 years. At June 30, 2021, the fair value of these interest rate swaps was a net liability of $22.2 million, of which $9.7 million was included in accrued liabilities and $12.5 million was included in other liabilities on the condensed consolidated balance sheet. At December 31, 2020, the fair value of these interest rate swaps was a net liability of $29.0 million, of which $9.7 million was included in accrued liabilities and $19.3 million was included in other liabilities on the condensed consolidated balance sheet.

In the second quarter of 2021, we entered into ten cross currency swaps to hedge a portion of our net investments in certain of our subsidiaries with euro functional currencies. We elected to use the spot method to assess effectiveness for our derivatives that are designated as net investment hedges. Under the spot method, the change in fair value attributable to changes in the spot rate is recorded in the foreign currency translation adjustments component of accumulated other comprehensive income (loss). We have elected to exclude the spot-forward difference from the assessment of hedge effectiveness and are amortizing this amount separately on a straight-line basis over the term of these cross currency swaps.

At June 30, 2021, the notional value of these cross currency swap contracts was $400 million with a remaining weighted average maturity of 7.3 years. At June 30, 2021, the fair value of these currency swaps was a net asset of $8.6 million, of which $4.3 million was included in prepaid expenses and other and $4.3 million was included in other assets on the condensed consolidated balance sheet.

The effect of the interest rate swaps and the amortization of the spot-forward difference on the net investment hedges cross currency swaps is included in interest expense as follows:


	Three Months Ended June 30,			Six Months Ended June 30,
(In millions)	2021		2020	2021	2020

Interest rate swaps designated as cash flow hedges	$	2.5	2.1	4.9	2.9
Cross currency swaps designated as net investment hedges	(1.1)		—	(1.1)	—
Net derivative instrument (gains) losses included in interest expense	$	1.4	2.1	3.8	2.9

The fair values of these forward and swap contracts are based on the present value of net future cash payments and receipts, which we have categorized as a Level 2 valuation.

Other Financial Instruments

Other financial instruments include cash and cash equivalents, accounts receivable, floating rate debt, accounts payable and accrued liabilities. The financial statement carrying amounts of these items approximate the fair value.

There were no transfers in or out of any of the levels of the valuation hierarchy in the first six months of 2021.