Derivatives

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

16. Derivatives

Foreign currency derivatives

The Company uses forward currency contracts to hedge earnings from the effects of foreign exchange relating to certain of the Company’s intercompany and third-party receivables and payables denominated in a foreign currency. These derivative instruments are not formally designated as cash flow hedges by the Company and the terms of these instruments range from one to three months.

Interest rate swaps

The objective of the designated interest rate swap contracts is to offset the variability of cash flows in LIBOR indexed debt interest payments attributable to changes in the benchmark interest rate related to the Term B-3 Loan and a portion of debt outstanding under the North American ABL Facility. On March 17, 2020, the Company executed $250.0 million of interest rate swap contracts effective June 30, 2020 to replace swaps with maturities on June 30, 2020. The interest rate swap contracts have maturities at various dates through June 2024.

Cross currency swap contracts

Cross currency swap contracts are used to effectively convert the Term B-5 Loan’s principal amount of floating rate US dollar denominated debt, including interest payments, to fixed-rate Euro denominated debt maturing in November 2024. As of March 31, 2020, approximately 95% of the cross currency swaps are designated as a cash flow hedge.

The Company uses both undesignated interest rate swap contracts and cross currency swaps to manage interest rate variability and mitigate foreign exchange exposure.

Notional amounts and fair value of derivative instruments

The following table presents the notional amounts of the Company’s outstanding derivative instruments by type:

(in millions)	March 31, 2020		December 31, 2019
Derivatives designated as hedging instruments:
Interest rate swap contracts	$	1,050.0	$	1,050.0
Cross currency swap contracts	381.0		381.0
Derivatives not designated as hedging instruments:
Interest rate swap contracts	200.0		200.0
Foreign currency derivatives	116.6		141.4
Cross currency swap contracts	19.0		19.0

The following are the pre-tax effects of derivative instruments on the condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2020 and 2019:

	Statement of Operations Classification	Amount of gain (loss) reclassified from other comprehensive loss into income (effective and ineffective portion)				Amount to be reclassified to consolidated statement of operations within the next 12 months
		Three months ended March 31,
(in millions)		2020		2019
Derivatives in cash flow hedging relationships:
Interest rate swap contracts	Interest expense	$	(0.9)	$	3.8	$	(16.3)
Cross currency swap contracts	Interest expense	1.9		—		2.6
	Other expense, net	6.2		—		—

Refer to “Note 8: Other expense, net” for the gains and losses related to derivatives not designated as hedging instruments.

The following table presents the Company’s gross assets and liabilities measured on a recurring basis and classified as level 2 within the fair value hierarchy:

		Derivative Assets					Derivative Liabilities
(in millions)	Balance Sheet Location	March 31, 2020		December 31, 2019		Balance Sheet Location	March 31, 2020		December 31, 2019
Designated Derivatives:
Cross currency swap contracts	Prepaid expenses and other current assets	$	2.6	$	7.2	Other long-term liabilities	$	2.7	$	12.1
Interest rate swap contracts	Prepaid expenses and other current assets	—		—		Other accrued expenses	16.3		6.4
Interest rate swap contracts	Other assets	—		—		Other long-term liabilities	25.5		14.0
Total derivatives in hedging relationships		$	2.6	$	7.2		$	44.5	$	32.5
Undesignated Derivatives:
Foreign currency contracts	Prepaid expenses and other current assets	$	1.6	$	0.5	Other accrued expenses	$	2.2	$	1.0
Cross currency swap contracts	Prepaid expenses and other current assets	0.1		0.4		Other long-term liabilities	0.1		0.6
Interest rate swap contracts	Prepaid expenses and other current assets	—		—		Other accrued expenses	3.3		1.0
Interest rate swap contracts	Other assets	—		—		Other long-term liabilities	4.3		1.9
Total derivatives not designated as hedging instruments		$	1.7	$	0.9		$	9.9	$	4.5
Total derivatives	Total assets	$	4.3	$	8.1	Total liabilities	$	54.4	$	37.0

The net amounts by legal entity related to forward currency contracts included in prepaid and other current assets were $1.2 million and $0.2 million as of March 31, 2020 and December 31, 2019, respectively. The net amounts related to forward currency contracts included in other accrued expenses were $1.8 million and $0.7 million as of March 31, 2020 and December 31, 2019, respectively.

The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of swaps is determined by estimating the net present value of amounts to be paid under the agreement offset by the net present value of the expected cash inflows based on market rates and associated yield curves. Based on these valuation methodologies, these derivative contracts are classified as Level 2 in the fair value hierarchy.