Financial Instruments, Hedging Activities and Fair Value Measurements

9 Months Ended

Sep. 30, 2024

Fair Value Disclosures [Abstract]

Financial Instruments, Hedging Activities and Fair Value Measurements

FINANCIAL INSTRUMENTS, HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENTS

Fair value of financial instruments

Equity securities with readily determinable fair values - Balances of equity securities are recorded within other assets, with any changes in fair value recorded within other (income) expense, net. The fair values of equity securities are based upon quoted market prices, which are considered Level 1 inputs.

Long-term borrowings - The estimated fair values of these borrowings are based on recent trades, as reported by a third-party pricing service. Due to the infrequency of trades, these inputs are considered to be Level 2 inputs.

Derivative instruments - The Company’s interest rate swaps, cross-currency swaps and foreign currency forward contracts are valued using broker quotations or market transactions in either the listed or over-the-counter markets. As such, these derivative instruments are included in the Level 2 hierarchy.

Fair value of contingent consideration

Contingent consideration is valued using a probability-weighted expected payment method that considers the timing of expected future cash flows and the probability of whether key elements of the contingent event are completed. The fair value of contingent consideration is valued at each balance sheet date, until amounts become payable, with adjustments recorded within other (income) expense, net in the condensed consolidated statements of operations. Due to the significant unobservable inputs used in the valuations, these liabilities are categorized within Level 3 of the fair value hierarchy.

The table below presents the fair values of our financial instruments measured on a recurring basis by level within the fair value hierarchy at September 30, 2024 and December 31, 2023.

	September 30, 2024								December 31, 2023
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Prepaid expenses and other current assets:
Cross-currency swaps (1)	$	—	$	8	$	—	$	8	$	—	$	8	$	—	$	8
Other assets:
Investments in equity securities	1		—		—		1		1		—		—		1
Liabilities:
Other accrued liabilities:
Interest rate swaps (1)	—		1		—		1		—		—		—		—
Cross-currency swaps (1)	—		8		—		8		—		8		—		8
Contingent consideration	—		—		12		12		—		—		8		8
Other liabilities:
Cross-currency swaps (1)	—		35		—		35		—		38		—		38
Long-term borrowings:
2029 Dollar Term Loans	—		1,709		—		1,709		—		1,794		—		1,794
2027 Dollar Senior Notes	—		496		—		496		—		487		—		487
2029 Dollar Senior Notes	—		656		—		656		—		633		—		633
2031 Dollar Senior Notes	—		534		—		534		—		527		—		527

(1)    Net investment hedge

The table below presents a roll forward of activity for the Level 3 liabilities for the nine months ended September 30, 2024.

	Fair Value Using Significant Unobservable Inputs (Level 3)
Beginning balance at December 31, 2023	$	8
Change in fair value	4
Foreign currency translation	—
Ending balance at September 30, 2024	$	12

Derivative Financial Instruments

We selectively use derivative instruments to reduce market risk associated with changes in foreign currency exchange rates and interest rates. The use of derivatives is intended for hedging purposes only, and we do not enter into derivative instruments for speculative purposes.

Derivative Instruments Qualifying and Designated as Net Investment and Cash Flow Hedges

Cross-Currency Swaps Designated as Net Investment Hedges

One fixed-for-fixed cross-currency swap with a notional amount of $150 million, previously executed in 2023, was set to mature on March 31, 2024. We extended the maturity on this cross-currency swap to September 30, 2025 and reset the terms. Under the terms of this reset cross-currency swap agreement, we notionally exchanged $150 million at an interest rate of 6.692% for €142 million at an interest rate of 4.899%. The cross-currency swap is designated as a net investment hedge. This cross-currency swap is marked to market at each reporting date and any unrealized gains or losses are included in unrealized currency translation adjustments, within accumulated other comprehensive loss ("AOCI").

Interest Rate Swaps Designated as Cash Flow Hedges

An interest rate swap with a notional amount of $150 million, which was previously executed in 2023 and set to expire on March 31, 2024, was terminated early on March 27, 2024. Concurrently, we entered into an interest rate swap with a notional amount of $150 million to hedge interest rate exposures associated with the 2029 Dollar Term Loans. Under the terms of the interest rate swap agreement, the Company is required to pay the counter-party a stream of fixed interest payments at a rate of 4.692% on $150 million of notional value, and in turn, receives variable interest payments based on 3-month SOFR from the counter-party subject to a floor of 0.5%. The interest rate swap is designated as a cash flow hedge and expires on September 30, 2025. This interest rate swap is marked to market at each reporting date and any unrealized gains or losses are included in AOCI and reclassified to interest expense in the same period or periods during which the hedged transactions affect earnings.

Gains and losses for hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis.

The following table sets forth the locations and amounts recognized during the three and nine months ended September 30, 2024 and 2023 for the Company's cash flow and net investment hedges.

		Three Months Ended September 30,
		2024				2023
Derivatives in Cash Flow and Net Investment Hedges	Location of Loss (Gain) Recognized in Income on Derivatives	Net Amount of Loss Recognized in OCI on Derivatives		Amount of Gain Recognized in Income		Net Amount of Gain Recognized in OCI on Derivatives		Amount of Gain Recognized in Income
Interest rate swaps	Interest expense, net	$	3	$	—	$	—	$	—
Cross-currency swaps	Interest expense, net	34		(3)		(14)		(2)

		Nine Months Ended September 30,
		2024				2023
Derivatives in Cash Flow and Net Investment Hedges	Location of Loss (Gain) Recognized in Income on Derivatives	Net Amount of Loss (Gain) Recognized in OCI on Derivatives		Amount of Gain Recognized in Income		Net Amount of Gain Recognized in OCI on Derivatives		Amount of Gain Recognized in Income
Interest rate swaps	Interest expense, net	$	2	$	—	$	(2)	$	(3)
Cross-currency swaps	Interest expense, net	(14)		(11)		—		(8)

Derivative Instruments Not Designated as Cash Flow Hedges

We periodically enter into foreign currency forward and option contracts to reduce market risk and hedge our balance sheet exposures and cash flows for subsidiaries with exposures denominated in currencies different from the functional currency of the relevant subsidiary. These contracts have not been designated as hedges and all gains and losses are marked to market through other (income) expense, net in the condensed consolidated statements of operations.

Fair value gains and losses of derivative contracts, as determined using Level 2 inputs, that have not been designated for hedge accounting treatment under ASC 815, Derivatives and hedging, are recorded in earnings as follows:

Derivatives Not Designated as Hedging Instruments under ASC 815	Location of Loss (Gain) Recognized in Income on Derivatives	Three Months Ended September 30,				Nine Months Ended September 30,
		2024		2023		2024		2023
Foreign currency forward contracts	Other (income) expense, net	$	—	$	4	$	(4)	$	(3)